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Registration Statement No. 333-161075
• | Voyager and Cambium will become wholly owned subsidiaries of Holdings, a newly formed holding company; | |
• | each holder of Voyager common stock outstanding immediately prior to the effective time of the mergers will be entitled to receive, for each share of common stock of Voyager held, merger consideration equal to: |
• | at the election of the stockholder, either: |
• | one share of Holdings common stock, or | |
• | $6.50 in cash, subject to proration rules described in the accompanying proxy statement/prospectus; plus, regardless of the election made, |
• | an amount in cash equal to the amount of specified tax refunds received by Voyager prior to the closing of the mergers (reduced by the amount of the Voyager tax refunds contractually required to be placed in escrow at closing), divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers; plus | |
• | a contingent value right entitling the recipient to receive cash in an amount equal to the aggregate amount of specified Voyager tax refunds received after the closing of the mergers and various other amounts deposited in escrow on or after the closing date, as reduced by any payments to be made under an escrow agreement to be entered into in connection with the merger, with respect to agreed contingencies, a potential working capital adjustment and Stockholders’ Representative expenses, divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers; and |
• | the sole stockholder of Cambium will receive 20,454,312 shares of Holdings common stock, based upon the ascribed value of $6.50 per share, and a warrant to purchase a number of shares of Holdings common stock determined by a formula set forth in the merger agreement; upon completion of the mergers, the sole stockholder of Cambium will hold 24,300,466 shares of Holdings common stock, 3,846,154 of which shares will be purchased for $25 million in cash immediately prior to the effective time of the mergers. |
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• | the adoption of the Agreement and Plan of Mergers, dated as of June 20, 2009 (the “merger agreement”), by and among Cambium Learning Group, Inc., a Delaware corporation (formerly known as Cambium-Voyager Holdings, Inc. and referred to in this document as “Holdings”), Voyager, Vowel Acquisition Corp., a Delaware corporation (“Voyager merger sub”), VSS-Cambium Holdings II Corp., a Delaware corporation (“Cambium”), Consonant Acquisition Corp., a Delaware corporation (“Cambium merger sub”), and Vowel Representative, LLC, a Delaware limited liability company; and | |
• | the adjournment of the Voyager special meeting, if necessary, to allow time for further solicitation of proxies if there are insufficient votes present at the meeting, in person or by proxy, to adopt the merger agreement. |
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If you are requesting additional information regarding Holdings, Cambium or Cambium’s subsidiaries: | If you are requesting additional information regarding Voyager or Voyager’s subsidiaries: | |
Cambium Learning, Inc. 313 Speen Street Natick, Massachusetts 01760 Attn: David Cappellucci Telephone:(508) 647-1340 | Voyager Learning Company 1800 Valley View Lane, Suite 400 Dallas, Texas 75234 Attn: Todd W. Buchardt, Esq. Telephone: (214) 932-9500 |
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• | the risk that the transactions contemplated by the merger agreement will not be completed, including the risk that required stockholder approvals for the transaction may not be obtained; | |
• | the possibility that expected synergies and cost savings will not be realized; | |
• | the possibility that the costs of combining Cambium and Voyager are higher than expected; | |
• | the possibility that Holdings may not be able to integrate successfully the business, operations and employees of Cambium and Voyager; | |
• | the possibility that revenues following the mergers are lower than expected; | |
• | the possibility that competition will increase in the industries or markets in which Cambium and Voyager operate and in which the combined company will operate; | |
• | the possibility that capital market conditions, including the recent global economic crisis, interest rate volatility and other limitations on the availability of capital could have an adverse effect on the combined company’s cost of capital and its ability to access the capital markets to support requirements for working capital and the repayment of maturing debt; |
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• | the possibility of adverse changes in the political or educational environments; | |
• | the possibility that technological changes are more difficult or expensive to implement than anticipated; | |
• | the possibility of adverse changes in the securities markets; | |
• | the potential loss of key personnel following the mergers; | |
• | the possibility that Holdings’ securities may not be listed on the NASDAQ Global Market; and |
• | other risks and uncertainties described in the section entitled “RISK FACTORS” on page 32. |
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AND THE SPECIAL MEETING OF VOYAGER STOCKHOLDERS
Q: | What is the proposed transaction upon which I am being asked to vote? | |
A: | You, as a holder of Voyager common stock, are being asked to vote to adopt a merger agreement, to which Voyager is a party. Subject to the terms and conditions of the merger agreement, Cambium and Voyager will enter into contemporaneous mergers with newly formed subsidiaries of Holdings, and after the mergers Cambium and Voyager each will be a wholly owned subsidiary of Holdings. | |
Q: | Why am I receiving this proxy statement/prospectus? | |
A: | In order to complete the mergers, Voyager stockholders must adopt the merger agreement and all of the other conditions to the completion of the mergers under the merger agreement must be satisfied or waived. Voyager will hold the Voyager special meeting to obtain the required approval of the holders of its common stock. This proxy statement/prospectus contains important information about Holdings, Cambium and Voyager, the merger agreement, the Voyager special meeting, and the Voyager merger and the Cambium merger, which we refer to together as the mergers. You should read this proxy statement/prospectus carefully before deciding how to vote on the adoption of the merger agreement. | |
Q: | How many votes do I have? | |
A: | Each holder of Voyager common stock will be entitled to one vote for each share held as of the record date on all matters to be voted upon at the Voyager special meeting. | |
Q: | What will I receive in the merger? | |
A: | Each holder of Voyager common stock outstanding immediately prior to the effective time of the mergers will be entitled to receive, for each share of common stock of Voyager held, merger consideration equal to: | |
• at the election of the stockholder, either: |
• | one share of Holdings common stock, or | |
• | $6.50 in cash, subject to proration rules referred to below; plus, regardless of the election made, |
• an amount in cash equal to the amount of specified tax refunds received by Voyager prior to the closing of the mergers (reduced by the amount of the Voyager tax refunds contractually required to be placed in escrow at closing), divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers, which we estimate to be 29,874,145 shares; plus | ||
• a contingent value right, which we sometimes refer to as a CVR, which represents the right to receive cash in an amount equal to the aggregate amount of specified tax refunds received after the closing of the mergers and various other amounts deposited in escrow on or after the closing date, reduced by any payments to be made under an escrow agreement to be entered into in connection with the mergers, with respect to agreed contingencies, a potential working capital adjustment and Stockholders’ Representative expenses, divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers. The maximum value of the CVR cannot be determined at this time. However, the total amount of the CVR is expected to be not more than $11 million, and may be substantially less than $11 million depending on various factors, including events beyond management’s control. |
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For more information regarding the determination of fair value for each of the components of the CVR, please see Note 4 of the Notes to Unaudited Pro Forma Condensed Combined Financial Statements as presented under the caption “UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.” | ||
The amount of cash available to satisfy cash elections by Voyager stockholders will be determined by an agreed formula that is primarily dependent on the cash generated by Voyager prior to closing, but the amount of cash available for cash elections is limited to a maximum of $67.5 million in the aggregate. If the amount of cash available for the cash elections is insufficient to accommodate all of the cash elections made by the Voyager stockholders, then the stockholders electing to exchange shares for cash will be subject to a pro-rata reduction in accordance with agreed procedures set forth in the merger agreement and described in this proxy statement/prospectus. The shares of Voyager common stock that are not exchanged for cash will be exchanged for shares of Holdings common stock. There is no comparable limit on the extent to which Holdings will honor stock elections. Thus, if a Voyager stockholder elects to receive Holdings stock in exchange for all of the stockholder’s shares of Voyager common stock, that stockholder will not be subject to proration under the merger agreement and will receive only Holdings common stock. |
Neither the amount of the tax refund distribution nor the maximum value of the CVR can be determined at this time. However, the total amount payable in respect of the pre-closing tax refunds and the CVR, on a combined basis, is expected to be not less than $0.52 per share and not more than $0.89 per share, and may be substantially less than $0.89 per share depending on various factors specified in the merger agreement. The expected minimum amount payable of $0.52 per share is based on specified tax refunds of $15.5 million received by Voyager prior to signing the merger agreement. The expected maximum amount payable of not more than $0.89 per share is based on the $15.5 million of specified tax refunds received prior to signing the merger agreement, plus any pre-closing tax refunds received between the signing of the merger agreement and the closing of the mergers to the extent such amount exceeds $4 million, plus the anticipated maximum amount of the CVR, which amount is primarily dependent upon Voyager’s success in collecting tax refunds no later than 18 months after the effective time of the mergers, the return of amounts that Voyager is required to deposit with an escrow agent related to potential liabilities arising under Section 280G of the Internal Revenue Code, and amounts paid out of the CVR escrow fund for, among other things, tax refunds that are not ultimately collected, payment of specified tax liabilities, third party expenses associated with collecting the tax refunds and defending against the specified tax liabilities, working capital adjustments, and Stockholders’ Representative expenses. The anticipated amount of tax refunds to be received by Voyager after the execution of the merger agreement is based on management’s analysis of Voyager’s tax position. |
Q: | What percentage of Holdings will be owned by the former stockholders of Voyager? |
A: | The answer to this question will depend upon the elections made by Voyager stockholders and the amount of cash available for distribution to Voyager stockholders. The following table shows the amount of cash and stock consideration that would be received by Voyager stockholders, in the aggregate, if the cash available for cash elections is as set forth at the various assumed levels in the table. The amount of cash available for elections can not exceed the maximum level in the table, but could be less than the minimum level in the table, depending principally upon Voyager’s cash needs during the period prior to the closing. The table also shows the hypothetical percentage ownership in Holdings that would be held by the Voyager stockholders at the specified assumed levels of cash available for cash elections. The table does not include the amount of cash to be paid to Voyager stockholders from specified tax refunds received prior to closing and from the CVRs described above. The amounts provided are based on 29,874,145 Voyager shares of common stock outstanding on September 30, 2009, and 24,300,466 shares of Holdings to be held by the sole stockholder of Cambium upon completion of the mergers, 3,846,154 of which shares will be purchased by the Cambium stockholder immediately prior to the effective time of the mergers for a total of $25 million in cash. These amounts also assume that each stockholder elects to receive cash for each share of Voyager common stock held by the stockholder and that no stockholder exercises appraisal rights |
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described elsewhere in this proxy statement/prospectus. The percentages set forth below assume that no portion of the Holdings Warrant has been exercised. |
Shares of | Percentage of | |||||||
Holdings Common | Holdings Common | |||||||
Stock to be | Stock to be Owned | |||||||
Issued to Voyager | by Voyager | |||||||
Amount of Cash Available for Cash Election | Stockholders | Stockholders | ||||||
$67,500,000 | 19,489,530 | 44.5 | % | |||||
$65,000,000 | 19,874,145 | 45.0 | % | |||||
$62,500,000 | 20,258,761 | 45.5 | % |
The number of shares of Holdings common stock issuable pursuant to the Holdings Warrant is based upon the calculation of three separate amounts, described elsewhere herein as the Cambium Specified Asset Recoupment Amount, the Additional Share Amount and the Formula Amount, which are summarized as follows: |
• | The Cambium Specified Asset Recoupment Amount is based upon the net amount of recoveries that Cambium receives on and after June 1, 2009, including periods after the effective time of the mergers, with respect to an embezzlement matter that was discovered by Cambium in April 2008. To date, Cambium has received net recoveries of approximately $535,000 with respect to this matter and, although we cannot assure you of the actual amount of net recoveries that Cambium will receive, management believes that it is likely that the maximum amount it will be able to recover is $4,250,000. The Cambium Specified Asset Recoupment Amount equals 0.45 multiplied by the quotient of the aggregate net recoveries divided by $6.50. Thus, for purposes of calculating the Base Amount and Likely Maximum Amount described below, we have included 37,038 shares in the Base Amount (correlating to a net recovery of $535,000) and 294,230 shares in the Likely Maximum Amount (correlating to a net recovery of $4,250,000) with respect to the Cambium Specified Asset Recoupment Amount. | |
• | The Additional Share Amount will be calculated over a period commencing at the effective time of the mergers and ending two years thereafter. The Additional Share Amount will equal the number of shares of Voyager common stock, if any, that are surrendered upon consummation of the Voyager merger in excess of the sum of the 29,874,145 shares that are known to be currently outstanding plus the number of shares of Voyager common stock that are issued upon the exercise of options known to be currently outstanding, provided that the maximum Additional Share Amount is capped at a maximum of 145,000 shares. At present, we do not believe that any such additional shares will be surrendered. Accordingly, for purposes of calculating the Base Amount below, we have not included any shares with respect to the Additional Share Amount. Because the parties agreed to limit the Additional Share Amount to a maximum of 145,000 shares, we have included 145,000 shares in the Likely Maximum Amount with respect to the Additional Share Amount. | |
• | The Formula Amount adds shares to the Holdings Warrant only if, prior to completion of the mergers, equity cure payments are made under Cambium’s existing credit agreements, debt is retired under those agreements or payments are made to obtain default-related waivers under those agreements. To date, the only applicable event is an equity cure payment of $2,959,000 made in August 2009, as disclosed elsewhere in this proxy statement/prospectus. Cambium does not anticipate making any further payments covered by the Formula Amount between the date of this proxy statement/prospectus and the completion of the mergers. Subject to qualifications that are not relevant to the equity cure payment that has previously been made, the Formula Amount equals the equity cure payment of $2,959,000 divided by $6.50, or 455,230 shares. Because the equity cure payment has been made and Cambium does not anticipate making any additional payments that will impact the Formula Amount, we have included 455,230 shares in both the Base Amount described below and the Likely Maximum Amount described below with respect to the Formula Amount. |
For the reasons set forth above, we believe that the minimum number of shares of Holdings common stock to be covered by the Holdings Warrant (the “Base Amount”) is 492,268 shares and the likely maximum |
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number of shares of Holdings common stock to be covered by the Holdings Warrant (the “Likely Maximum Amount”) is 894,460 shares. For further information regarding the calculation of the shares to be covered by the Holdings Warrant, see “THE MERGER AGREEMENT — Merger Consideration — Cambium consideration.” | ||
The table above assumes that the Holdings Warrant is not exercised. The table below is based on the same assumptions that underlie the table above except that the table below shows the percentage of Holdings common stock to be owned by Voyager stockholders if the Holdings Warrant is exercised with respect to the Base Amount of 492,268 shares, the Likely Maximum Amount of 894,460 shares and the midpoint amount of 693,364 shares (the “Midpoint Amount,” which reflects the midpoint in shares between 492,268 shares and 894,460 shares): |
Amount of Cash Available for Cash Election | Percentage of Holdings Common Stock to be Owned by Voyager Stockholders Assuming that the Holdings Warrant is exercised for: | |||||||||||
492,268 | 693,364 | 894,460 | ||||||||||
Shares | Shares | Shares | ||||||||||
(Base Amount) | (Midpoint Amount) | (Likely Maximum Amount) | ||||||||||
$67,500,000 | 44.0 | % | 43.8 | % | 43.6 | % | ||||||
$65,000,000 | 44.5 | % | 44.3 | % | 44.1 | % | ||||||
$62,500,000 | 45.0 | % | 44.8 | % | 44.6 | % |
The following table shows the amount of cash and stock consideration that would be received by a Voyager stockholder owning 1,000 shares of Voyager common stock if the cash available for cash elections is as set forth at the various assumed levels in the table. The table does not include the amount of cash to be paid to Voyager stockholders from certain tax refunds received prior to closing and from the CVRs described above. The amounts shown are based on 29,874,145 shares of Voyager common stock outstanding as of September 30, 2009. These amounts also assume that each Voyager stockholder elects to receive cash for each share of Voyager common stock held by the stockholder and that no stockholder exercises appraisal rights. |
Amount of Cash Available for | Shares of Holdings | |||||||
Cash Elections | Cash Consideration | Common Stock | ||||||
$67,500,000 | $ | 2,255.50 | 653 | |||||
$65,000,000 | $ | 2,171.00 | 666 | |||||
$62,500,000 | $ | 2,086.50 | 679 |
Q: | How and when do I make a cash election or a share election? | |
A: | Wells Fargo Shareowner Services is mailing a form of election to Voyager stockholders separate from this proxy statement/prospectus. You should carefully review and follow the instructions accompanying the form of election. To make a cash election or a share election, Voyager stockholders of record must properly complete and sign the form of election and must send the completed form of election to Wells Fargo Bank, N.A., the exchange agent, to one of the following addresses: |
By U.S. Mail to: | By Overnight Courier or Hand-Delivery to: | |
Wells Fargo Shareowner Services Corporate Actions Department P.O. Box 64858 St. Paul, MN 55164-0858 | Wells Fargo Shareowner Services Corporate Actions Department 161 North Concord Exchange South St. Paul, MN 55075 |
The election form must be received by the exchange agent on or before 5:00 p.m., New York City time, on December 7, 2009, the business day immediately prior to the date of the Voyager special meeting. We refer to that time and date as the election deadline. Please do not return the election form in the same envelope with the proxy card. Any questions regarding the process for making cash or share elections should be directed to: |
Shareholder Relations Department
1-877-262-8260
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If you own Voyager shares of common stock in “street name” through a bank, broker or other nominee and you wish to make an election, you will receive or should seek instructions from the financial institution holding your shares concerning how to make your election. “Street name” holders may be subject to an election deadline earlier than the general deadline of the business day immediately prior to the date of the Voyager special meeting. Therefore, you should carefully read any materials you receive from your bank, broker or other nominee. | ||
The conversion of Voyager shares into the right to receive the applicable merger consideration will occur automatically at the effective time of the mergers. The exchange agent will, as soon as reasonably practicable after the effective time of the mergers, exchange Voyager shares for the applicable merger consideration to be received in the mergers pursuant to the terms of the merger agreement. | ||
Q: | Can I elect to receive cash consideration for a portion of my Voyager shares and stock consideration for my remaining Voyager shares? | |
A: | Yes. The form of election allows you to make an election for cash consideration or share consideration for all or any portion of your shares of Voyager common stock. | |
Q: | Can I change my election after the form of election has been submitted to the exchange agent? | |
A: | Yes. Voyager stockholders may change their election prior to the election deadline by submitting a written notice of revocation to the exchange agent or by submitting new election materials bearing a later date. Revocations must specify the name in which shares are registered on Voyager’s stock transfer books and other information that the exchange agent may request. If Voyager stockholders wish to submit a new election, they must do so in accordance with the election procedures described in this proxy statement/prospectus and the form of election. Voyager stockholders who instruct a broker, bank or other nominee to submit an election for their shares must follow the directions of the broker, bank or other nominee for changing those instructions.Whether you change your election by submitting a written notice of revocation or by submitting new, later-dated election materials, the notice or materials must be received by the exchange agent by the election deadline in order for the revocation to be valid. | |
Q: | Can I sell or otherwise transfer my shares of Voyager common stock after I make an election? | |
A: | Yes. However, by selling or otherwise transferring your shares, you will be deemed to have revoked your election. The buyer or transferee will be deemed to have made no election unless the buyer or transferee submits a form of election prior to the election deadline. | |
Q: | What will happen if I do not make an election or my form of election is not received by the exchange agent before the election deadline? | |
A: | If the exchange agent does not receive a properly completed form of election from you before the election deadline, or if you submit an election form but do not make an election between stock or cash, your shares will be deemed to be “No Election Shares” and you will be treated in the same manner as if you had elected to receive solely Holdings common stock upon completion of the mergers in exchange for all of your Voyager common stock. | |
If you are a Voyager stockholder and you do not make a valid election with respect to Voyager shares you own of record and have not exercised your appraisal rights, then, after completion of the mergers, you will receive written instructions from the exchange agent on how to exchange your Voyager stock certificates for the shares of Holdings common stock that you are entitled to receive in the mergers as a non-electing Voyager stockholder. | ||
Q: | May I submit a form of election if I vote against the adoption of the merger agreement? | |
A: | Yes. Voyager stockholders may submit a form of election even if they vote against the adoption of the merger agreement. |
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Q: | If I submit my election form, do I still need to send in my proxy card? |
A: | Yes. The election form communicates to the exchange agent the form of consideration you desire to receive in the transaction, if the transaction is approved by the Voyager stockholders. The completion of your proxy card casts your vote, as a Voyager stockholder, either for, against or abstaining from voting on, adoption of the merger agreement. The proxy cards are received and tabulated by Voyager’s transfer agent, which is Computershare Investor Services. The election forms are received and processed by Wells Fargo Shareowner Services, which is a different organization from the transfer agent. To be sure your proxy is properly received and counted, please be certain to complete, sign and return the proxy card in the envelope provided with it, which will be addressed to Computershare Investor Services. |
Q: | Can I return the proxy card and the election form together? |
A: | No. Your completion of the proxy card casts your vote, as a Voyager stockholder, either for, against or abstaining from voting on, adoption of the merger agreement. The proxy cards are received and tabulated by Voyager’s transfer agent, which is Computershare Investor Services. The election forms are received and processed by Wells Fargo Shareowner Services, which is a different organization from the transfer agent. To be sure your proxy card is properly received and counted, please be certain to complete, sign and return the proxy card in the envelope provided with it, which will be addressed to Computershare Investor Services. Please send the election form in the envelope that accompanied it, which will be addressed to Wells Fargo Shareowner Services. |
Q: | When do you expect the mergers to be completed? | |
A: | The parties are working to complete the mergers promptly after the Voyager stockholder meeting is completed, assuming that the requisite stockholder vote for adopting the merger agreement is obtained. It is possible, however, that factors outside of the control of Cambium, Voyager or Holdings could require the parties to complete the mergers at a later time, or prevent the parties from completing the mergers at all. | |
Q: | What effects will the proposed mergers have on Voyager? | |
A: | Upon completion of the proposed mergers, Voyager will cease to be a publicly traded company and will be wholly owned by Holdings, which means that Holdings will be the only stockholder of Voyager. As a result, if you receive shares of Holdings common stock upon completion of the Voyager merger, you will own shares in Holdings only and will not directly own any shares in Voyager. Following completion of the mergers, the registration of Voyager’s common stock and its reporting obligations with respect to its common stock under the Exchange Act will be terminated. In addition, upon completion of the proposed mergers, shares of Voyager common stock will no longer be quoted on the Pink Sheets Electronic Quotation Service, which we refer to as the Pink Sheets, or any other stock exchange or quotation system. Although you will no longer be a stockholder of Voyager, if you receive Holdings common stock as part of your merger consideration, you will continue to have an indirect interest in Voyager and you also will have an indirect interest in Cambium, in both cases through your ownership of Holdings common stock. If you become a Holdings stockholder, you can expect that the value of your investment will depend upon the performance of both Cambium and Voyager, and Holdings’ ability to integrate the two companies. | |
Q: | What effects will the proposed mergers have on Holdings? | |
A: | Upon completion of the proposed mergers, Holdings will become the holding company of Cambium and Voyager and will become a new public company. Although not required as a condition to closing, Holdings expects that the shares of Holdings common stock issued in connection with the mergers to the stockholders of Cambium and Voyager will be listed on the NASDAQ Global Market. | |
Q: | What happens if the mergers are not completed? | |
A: | If the merger agreement is not approved by Voyager stockholders, or if the mergers are not completed for any other reason, Voyager stockholders will not receive any payment for their shares of Voyager common stock pursuant to the merger agreement or otherwise. Instead, Voyager will remain a public company and Voyager expects that its common stock will continue to be registered under the Exchange Act and traded |
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or quoted on the Pink Sheets or other stock exchange or automated quotation system. In specified circumstances, either Voyager or Cambium may be required to pay to the other party a termination fee, in each case as described in “THE MERGER AGREEMENT — Termination and Termination Fees” on page 141. | ||
Q: | Where can I find information about Cambium and Voyager? | |
A: | You can find information about Cambium and Voyager by reading this proxy statement/prospectus, including the sections entitled “INFORMATION ABOUT CAMBIUM’S BUSINESS” and “INFORMATION ABOUT VOYAGER’S BUSINESS” on pages 205 and 248, respectively. You can also find information about Voyager in the documents described in the section entitled “WHERE YOU CAN FIND MORE INFORMATION” on page 289. | |
Q: | What stockholder approvals are required to complete the transaction? | |
A: | A majority of the outstanding shares of Voyager common stock entitled to vote at the Voyager special meeting must vote “FOR” the adoption of the merger agreement in order for the transaction to be completed. | |
Q: | What will happen to options to acquire Voyager common stock? | |
A: | Each option to purchase shares of Voyager common stock granted under Voyager’s employee and director equity compensation plans or otherwise that is not terminated as of the effective time of the mergers will, upon completion of the mergers, be converted into an option to acquire, on the same terms and conditions (including applicable vesting provisions) as were applicable under the Voyager stock option, that number of shares of Holdings common stock equal to the number of shares of Voyager common stock subject to the Voyager stock option immediately prior to the effective time of the transaction, at a price per share equal to the per-share exercise price applicable to the Voyager stock option, and the converted option will be assumed by Holdings upon completion of the transaction. For additional information, see “THE MERGER AGREEMENT — Treatment of Voyager Stock Options and Stock Appreciation Rights” on page 124. | |
Q: | What do I need to do now? | |
A: | After you carefully read this proxy statement/prospectus, you should mail your signed proxy card in the enclosed return envelope, or submit your proxy by telephone or through the Internet in accordance with the instructions on the proxy card. In order to assure that your vote is recorded, please vote your proxy as soon as possible even if you plan to attend the Voyager special meeting in person. If you own your shares in “street name” through a bank, broker or other nominee, you must instruct your bank, broker or other nominee how to vote your shares using the enclosed voting instruction card. As mentioned, for your convenience, Internet and telephone voting is available in accordance with the instructions on the voting instruction card. You should also make sure that you submit your election to receive cash and/or shares of Holdings common stock prior to the election deadline. Please be sure to submit your election form in the envelope that was provided with the election form; please DO NOT return it together with your proxy card. | |
Q: | How does my participation in the Voyager special meeting in person or by proxy affect quorum requirements? | |
A: | The transaction of Voyager business at the Voyager special meeting requires a quorum, which will be established by the presence in person or by proxy of a majority of the outstanding shares of Voyager common stock entitled to vote at the Voyager special meeting. If you do not return your proxy card or submit your proxy by telephone or through the Internet or vote in person at the Voyager special meeting, it will be more difficult for Voyager to obtain the necessary quorum to transact business at the Voyager special meeting. In addition, your failure to participate in the Voyager special meeting in person or by proxy will have the same effect as a vote against the adoption of the merger agreement. | |
Q: | How does the Voyager board of directors recommend I vote? |
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A: | After careful consideration, Voyager’s board of directors unanimously recommends that Voyager stockholders vote“FOR” the proposal to adopt the merger agreement. For a description of the reasons underlying the recommendation of Voyager’s board of directors, see “THE MERGERS — Voyager’s Reasons for the Voyager Merger; Consideration of the Voyager Merger by Voyager’s Board of Directors” on page 78. Voyager’s board also unanimously recommends that Voyager stockholders vote“FOR” the proposal to approve the adjournment of the Voyager special meeting, if necessary, to allow time for further solicitation of proxies if there are insufficient votes present at the meeting, in person or by proxy, to adopt the merger agreement. | |
Q: | How many shares of Voyager common stock are beneficially owned by Voyager’s directors and executive officers as of the record date? | |
A: | Directors and executive officers of Voyager beneficially owned an aggregate of 3,648,117 shares of Voyager common stock on the record date, including outstanding options to purchase 105,910 shares of common stock, all of which are exercisable. All of these shares represent approximately 12.17% of the total voting power of Voyager’s common stock as of the record date. | |
Q: | Have any Voyager stockholders committed to vote in favor of the merger agreement? | |
A: | Yes. In connection with the transactions contemplated by the merger agreement, SPO Partners II, L.P. and various SPO related parties and Keystone Group, L.P. and a Keystone related party, each of which is a Voyager stockholder, have each entered into a voting and support agreement with Holdings and Cambium, under which each stockholder has granted a proxy to a current and a former officer of Veronis Suhler Stevenson, or VSS, and has undertaken to vote its shares in favor of the Voyager merger and the merger agreement, unless the merger agreement has been terminated. The shares of Voyager common stock covered by these agreements represented 20.5% of the outstanding shares of Voyager common stock as of the date the merger agreement was signed and 20.5% as of the record date for the Voyager special meeting. | |
Q: | As a Voyager stockholder, how can I vote? | |
A: | You may vote “FOR” or “AGAINST” or abstain from voting for any of the proposals submitted to Voyager stockholders. Votes will be counted by the inspector of elections appointed for the Voyager special meeting. Registered stockholders as of the record date may vote in person at the Voyager special meeting or by one of the following methods: | |
• completing, signing and dating the enclosed proxy card and returning it in the enclosed prepaid envelope; | ||
• calling the toll-free telephone number on the proxy card and following the recorded instructions; or | ||
• through the Internet by following the instructions provided on the proxy card. | ||
Stockholders who hold shares of Voyager common stock in “street name” may vote by following the instructions provided by the bank, broker or other nominee holding their shares, including by one of the following methods: | ||
• Voting instruction card. Please complete, sign, date and return the voting instruction card in the enclosed pre-addressed envelope. | ||
• Other methods listed on your voting instruction card or other information forwarded by your bank, broker or other nominee. Please consult the voting instruction card sent to you by your bank, broker or other nominee to determine whether you may vote by telephone or electronically through the Internet. | ||
• In person at the Voyager special meeting with a legal proxy from your bank, broker or other nominee. Please consult the voting instruction card sent to you by your bank, broker or other nominee to determine how to obtain a legal proxy in order to vote in person at the Voyager special meeting. |
Submitting an election form does not count as a vote. You must complete, sign and return your proxy card to Computershare Investor Services in the envelope that was provided with the proxy card. Please do not send your election form and proxy card in the same envelope. |
For a more detailed explanation of voting procedures, see “THE SPECIAL MEETING OF VOYAGER STOCKHOLDERS — How You Can Vote” on page 49. |
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Q: | What does it mean if I receive more than one proxy card or more than one e-mail instructing me to vote? | |
A: | If you receive more than one proxy card or more than one email instructing you to vote, that means that your shares are registered in more than one name or are registered in different accounts. Please complete, date, sign and returneach proxy card, and respond toeache-mail, to ensure that all of your shares are voted. | |
Q: | What happens if I do not indicate how to vote on my proxy card? | |
A: | If you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be counted as a vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting if necessary to solicit additional proxies. | |
Q: | If my shares are held in “street name,” will my broker vote my shares for me? | |
A: | If you provide your broker, bank or other nominee with instructions on how to vote your “street name” shares on a timely basis, your broker, bank or other nominee will be permitted to vote your shares in accordance with your instructions. If you fail to instruct your broker, bank or other nominee to vote your shares and the broker, bank or other nominee submits an unvoted proxy, the resulting “broker non-votes” will be counted toward a quorum at the Voyager special meeting, but they will not be voted on any of the proposals and will have the same effect as a vote against the adoption of the merger agreement. | |
Q: | Can I change my vote after I have mailed my proxy card? | |
A: | Yes. You can change your vote at any time before your proxy is voted at the Voyager special meeting. You can do this in one of three ways: | |
• timely delivery of a valid, later dated proxy by mail, or a later dated proxy by telephone or through the Internet; | ||
• timely delivery of a written, dated notice to Voyager’s Secretary before the Voyager special meeting stating that you have revoked your proxy; or | ||
• voting by ballot at the Voyager special meeting (but note that your attendance at the Voyager special meeting alone will not revoke your proxy). | ||
If you have instructed a bank, broker or other nominee to vote your shares by executing a voting instruction card or by using the telephone or Internet, you must follow directions from your bank, broker or other nominee to change those instructions. | ||
Q: | When and where is the Voyager special meeting to be held? | |
A: | The Voyager special meeting will begin promptly at 8:00 a.m., local time, on December 8, 2009, at Voyager’s corporate headquarters, 1800 Valley View Lane, Suite 400, Dallas, Texas. For additional information, see “THE SPECIAL MEETING OF VOYAGER STOCKHOLDERS — Date, Time and Place of the Voyager Special Meeting” on page 49. | |
Q: | Can I attend the Voyager special meeting? | |
A: | Yes. You are entitled to attend the Voyager special meeting if you were a Voyager stockholder as of the close of business on November 4, 2009, the record date for the Voyager special meeting, or you hold a valid proxy for the Voyager special meeting. You should be prepared to present valid government-issued photo identification, such as a driver’s license or passport, for admittance to the Voyager special meeting. In addition, if you are a record holder of Voyager common stock, your name will be verified against the list of record holders as of the record date for the meeting prior to being admitted to the meeting. If you are not a record holder, but rather hold your shares through a broker, bank or other nominee (i.e.,in “street name”), you should provide proof of beneficial ownership on the record date, such as your most recent account statement prior to the record date or other similar evidence of ownership. If you do not provide valid government-issued photo identification or comply with the other procedures outlined above upon request, you may not be admitted to the Voyager |
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special meeting. For additional information, see “THE SPECIAL MEETING OF VOYAGER STOCKHOLDERS — Admission to the Voyager Special Meeting” on page 49. | ||
Q: | As a Voyager stockholder, will I be able to trade any shares of Holdings common stock that I receive as consideration in connection with the transaction? | |
A: | Yes, subject to certain restrictions applicable to affiliates of Holdings. Although not required as a condition to closing, Holdings expects that, upon completion of the mergers, the shares of Holdings common stock issued in connection with the mergers will be listed on the NASDAQ Global Market. | |
Q: | Will I be able to trade the CVRs that I receive in connection with the Voyager merger? | |
A: | No. The CVRs will not be listed on any exchange or otherwise be freely tradeable, and Holdings will be required to recognize transfers of CVRs only in very limited circumstances. For additional information, see “RELATED AGREEMENTS — Contingent Value Rights Agreement” on page 150. | |
Q: | As a stockholder of Voyager, am I entitled to appraisal rights? | |
A: | Yes. Under Delaware law, you have the right to dissent from the Voyager merger and to receive payment in cash for the fair value of your shares of Voyager common stock as determined by the Court of Chancery of the State of Delaware, which we refer to as the Delaware Court of Chancery, together with a fair rate of interest, if any, to be paid on the amount determined by the court to be the fair value of your shares, in lieu of the consideration you would otherwise be entitled to receive pursuant to the merger agreement. These rights are known as appraisal rights. Voyager stockholders electing to exercise appraisal rights must strictly comply with the provisions of Section 262 of the Delaware General Corporation Law, which we refer to as the DGCL, in order to perfect their rights. For additional information, see “THE MERGERS — Appraisal Rights” on page 109 and Section 262 of the DGCL, a copy of which is attached as Annex B to this proxy statement/prospectus. | |
Q: | What are the material federal income tax consequences of the mergers to me? | |
A: | Tax matters are complicated and the tax consequences of the transaction to you will depend on your individual circumstances.You should consult your tax advisor to determine the specific tax consequences of the mergers to you.For additional information, see “THE MERGERS — Material U.S. Federal Income Tax Consequences of the Mergers” on page 112. | |
Q: | Should I send in my stock certificates now? | |
A: | No. Please do not send in your stock certificates with your proxy cardor your election form. Shortly after the transaction is completed, you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the exchange agent in order to receive the merger consideration for your shares of Voyager common stock. If you hold your shares in “street name” through a broker, bank or other nominee, then you will receive instructions from your broker, bank or other nominee as to how to exchange your “street name” shares for the merger consideration. | |
Q: | How can I find out the results of the vote? | |
A: | Voyager will publicly announce final voting results as promptly as practicable after the Voyager special meeting is completed. Preliminary voting results may be announced at the Voyager special meeting. | |
Q: | Who is paying for this proxy solicitation? | |
A: | The entire cost of soliciting proxies in connection with the Voyager special meeting will be paid by Voyager. If the mergers are completed, that cost will be paid by Voyager to the extent that Voyager has excess cash to pay its transaction expenses, and may be paid by Holdings to the extent that Voyager does not have enough excess cash to pay its and Cambium’s transaction expenses. Voyager’s directors, officers, other employees and any other solicitors that Voyager may retain may solicit proxies personally, by telephone or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. Voyager will provide copies of its solicitation materials to banks, brokerage houses, |
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fiduciaries and custodians that hold beneficially owned shares of Voyager common stock for distribution to the beneficial owners. Voyager has retained Georgeson Inc. to aid in Voyager’s proxy solicitation process. Voyager estimates that its proxy solicitor fees will be approximately $8,000 plusout-of-pocket expenses incurred by the proxy solicitor. Voyager also will reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners of Voyager common stock. | ||
Q: | Who can help answer any questions I have as a Voyager stockholder? | |
A: | If you are a Voyager stockholder and you have questions, including questions about the mergers or any related transactions, the Voyager special meeting or the procedures for voting your shares, you should contact: |
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• | leverage the existing learning technologies of the combined company, such as using Voyager’s Ticket to Read and VMath Live learning technologies in Cambium’s core intervention programs to improve student time on task and the practice components of those programs; | |
• | consolidate the best of both data management systems into a single data management and progress monitoring system for all key intervention programs and assessments; and | |
• | consolidate the best of the combined company’s on-line and distance education content and technologies to offer an enhanced suite of education services for the educators and administrators served by Holdings. |
• | adopting “best practices” from each of Cambium and Voyager; | |
• | attracting leading authors and programs; and | |
• | acquiring and integrating additional product lines and businesses as opportunities arise that provide a compelling strategic fit and attractive economics. |
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• | at the election of the stockholder, either: |
• | one share of Holdings common stock, or | |
• | $6.50 in cash, subject to proration rules referred to below; plus, regardless of the election made, |
• | an amount in cash equal to the amount of specified tax refunds received by Voyager prior to the closing of the mergers (reduced by the amount of the Voyager tax refunds contractually required to be placed in escrow at closing), divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers, which we estimate to be 29,874,145 shares; plus | |
• | a CVR to receive cash in an amount equal to the aggregate amount of specified tax refunds received after the closing of the mergers and various other amounts deposited in escrow on or after the closing date, reduced by any payments to be made under an escrow agreement to be entered into in connection with the mergers, with respect to agreed contingencies, a potential working capital adjustment and Stockholders’ Representative expenses, divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers. |
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• | Ronald Klausner, the President of Voyager Expanded Learning, Inc., who will be Chief Executive Officer of Holdings; | |
• | David F. Cappellucci, the Chief Executive Officer of Cambium, who will be President of Holdings; | |
• | Bradley C. Almond, the Chief Financial Officer of Voyager, who will be Chief Financial Officer of Holdings; | |
• | John Campbell, the Chief Operating Officer of Voyager Expanded Learning, Inc., who will be Senior Vice President and the President of the Cambium Learning Technologies business unit of Holdings and | |
• | George A. Logue, an Executive Vice President of Cambium, who will be Executive Vice President and the President of the Supplemental Solutions business unit of Holdings. |
Voyager Common | ||||
Stock Close | ||||
June 19, 2009 | $ | 2.15 | ||
November 12, 2009 | $ | 4.50 |
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• | the retention of some of the officers of Voyager as officers or employees of Holdings or its subsidiaries; | |
• | the designation of two officers and a director of Voyager as directors of Holdings; | |
• | continuation of various indemnification and insurance obligations for the benefit of Voyager’s directors and executive officers; | |
• | the treatment of stock options and stock appreciation rights held by Voyager executive officers and directors at the effective time of the mergers; and | |
• | with respect to the executive officers of Voyager, the receipt of severance, retention, change in control or other payments, which are expected to be in the following aggregate amounts: |
Name | Title | Amount | ||||
Richard Surratt | President and Chief Executive Officer of Voyager | $ | 5,111,060 | |||
Ronald Klausner | President of Voyager Expanded Learning | $ | 1,826,056 | |||
Todd W. Buchardt | Senior Vice President and General Counsel of Voyager | $ | 660,059 | |||
Bradley C. Almond | Chief Financial Officer of Voyager | $ | 345,000 | |||
John Campbell | Chief Operating Officer of Voyager Expanded Learning | $ | 265,500 |
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• | the retention of various officers of Cambium Learning as officers or employees of Holdings or its subsidiaries; | |
• | the designation of an officer of Cambium Learning and all of the directors of Cambium as directors of Holdings; and | |
• | the treatment of interests held by Cambium Learning’s officers in a management incentive plan of one of Cambium’s subsidiaries at the effective time of the mergers, since these interests will terminate upon completion of the mergers and, upon or following the closing of the mergers, the officers of Cambium who were participants in the management incentive plan may be granted options to purchase shares of Holdings common stock under Holdings’ equity compensation plans. |
Name | Title | Options | ||||
Ronald Klausner | Chief Executive Officer | 750,000 | ||||
David F. Cappellucci | President | 600,000 | ||||
John Campbell | Senior Vice President and President of Cambium Learning Technologies | 300,000 | ||||
Bradley C. Almond | Chief Financial Officer | 250,000 | ||||
George A. Logue | Executive Vice President and President of Supplemental Solutions | 250,000 | ||||
Total: | 2,150,000 | |||||
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Successor | |||||||||||||||||||||||||||||||||
Period from | |||||||||||||||||||||||||||||||||
January 29, | Predecessor | ||||||||||||||||||||||||||||||||
2007 | Period from | ||||||||||||||||||||||||||||||||
�� | (Inception) | January 1, | Predecessor | Predecessor | Predecessor | ||||||||||||||||||||||||||||
Nine Months Ended: | Year Ended | through | 2007 through | Year Ended | Year Ended | Year Ended | |||||||||||||||||||||||||||
September 30, | September 30, | December 31, | December 31, | April 11, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||
(in thousands) | 2009 | 2008 | 2008 | 2007(1) | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||||||||||||
Product sales | $ | 70,331 | $ | 73,646 | $ | 89,207 | $ | 71,266 | $ | 15,238 | $ | 92,881 | $ | 75,430 | $ | 36,204 | |||||||||||||||||
Service revenues | 7,410 | 8,409 | 10,524 | 9,581 | 3,176 | 13,542 | 9,726 | 6,852 | |||||||||||||||||||||||||
Net sales | 77,741 | 82,055 | 99,731 | 80,847 | 18,414 | 106,424 | 85,156 | 43,056 | |||||||||||||||||||||||||
Total operating expenses | (75,292 | ) | (81,762 | ) | (104,648 | ) | (81,306 | ) | (32,179 | ) | (97,955 | ) | (81,017 | ) | (52,878 | ) | |||||||||||||||||
Acquired in-process research and development | — | — | — | (890 | ) | — | — | (500 | ) | — | |||||||||||||||||||||||
Embezzlement and related expenses(2) | 195 | (8,684 | ) | (7,254 | ) | (5,732 | ) | (1,000 | ) | (3,261 | ) | (290 | ) | (1,913 | ) | ||||||||||||||||||
Goodwill and other intangible asset impairment(3) | (9,105 | ) | — | (75,966 | ) | — | — | — | (4,132 | ) | (207 | ) | |||||||||||||||||||||
(Loss) income before interest, other income (expense), and income taxes | (6,461 | ) | (8,391 | ) | (88,137 | ) | (7,081 | ) | (14,765 | ) | 5,208 | (783 | ) | (11,942 | ) | ||||||||||||||||||
Gain from settlement with previous stockholders(4) | — | — | 30,202 | — | — | — | — | — | |||||||||||||||||||||||||
Net (loss) income | (16,309 | ) | (12,965 | ) | (69,560 | ) | (13,931 | ) | (11,812 | ) | 440 | (1,212 | ) | (8,454 | ) | ||||||||||||||||||
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As of: | |||||||||||||||||||||||||
Predecessor | Predecessor | Predecessor | |||||||||||||||||||||||
September 30, | December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||
(in thousands) | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||
Cash and cash equivalents | $ | 9,534 | $ | 2,418 | $ | 1,206 | $ | 1,642 | $ | 9,823 | $ | 545 | |||||||||||||
Total current assets | 46,693 | 31,617 | 26,601 | 25,007 | 32,672 | 18,060 | |||||||||||||||||||
Total assets | 257,672 | 270,478 | 369,138 | 138,028 | 115,034 | 80,235 | |||||||||||||||||||
Total current liabilities | 27,492 | 16,360 | 16,849 | 26,871 | 12,416 | 9,521 | |||||||||||||||||||
Total long term debt, less current portion | 150,426 | 153,787 | 176,402 | 17,500 | 17,500 | 17,500 | |||||||||||||||||||
Total liabilities | 202,818 | 202,274 | 239,058 | 59,133 | 49,414 | 42,902 | |||||||||||||||||||
Total members’ interest and shareholders’ equity | 54,584 | 68,204 | 130,080 | 78,895 | 65,620 | 37,333 | |||||||||||||||||||
(1) | On January 29, 2007, VSS-Cambium Holdings, LLC was formed for the purpose of acquiring all of the capital stock of Cambium Learning. That acquisition was completed on April 12, 2007. The Cambium consolidated financial statementsand/or financial data set forth in this proxy statement/prospectus present VSS-Cambium Holdings, LLC as of September 30, 2009, December 31, 2008 and December 31, 2007 on a successor basis reflecting the activity of VSS-Cambium Holdings, LLC from January 29, 2007 and the activity of Cambium Learning and its subsidiaries from April 12, 2007 and present Cambium Learning and its subsidiaries on a predecessor basis as of and for the years ended December 31, 2004, 2005 and 2006 and for the period January 1, 2007 through April 11, 2007, representing all periods prior to the time thatVSS-Cambium Holdings, LLC acquired Cambium Learning. |
(2) | Cambium discovered in 2008 that a former employee had perpetrated a significant misappropriation of assets during a period beginning in 2004 and extending through April 2008. |
(3) | Reflects the non-cash effect of the impairment write-down of goodwill and other intangible assets as of September 30, 2009, December 31, 2008, December 31, 2005 and December 2004 resulting from a reduction in the fair value of assets. |
(4) | For fiscal 2008, Cambium received a settlement from previous stockholders of Cambium relating to the embezzlement suffered by Cambium. For further information, see Note A to Cambium’s Consolidated Financial Statements included elsewhere in this proxy statement/prospectus. |
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Nine Months Ended: | Fiscal Year Ended: | |||||||||||||||||||||||||||
September 30, | September 30, | December 31, | December 29, | December 30, | December 31, | January 1, | ||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2005 | ||||||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||||||||||
Continuing Operations Data:(1)(2) | ||||||||||||||||||||||||||||
Net sales | $ | 79,584 | $ | 76,418 | $ | 98,531 | $ | 109,612 | $ | 115,051 | $ | 90,967 | $ | 1,837 | ||||||||||||||
Total operating expenses(3) | (85,333 | ) | (97,359 | ) | (126,993 | ) | (146,781 | ) | (159,175 | ) | (104,099 | ) | (18,467 | ) | ||||||||||||||
Goodwill impairment(4) | (27,175 | ) | — | (43,141 | ) | (67,232 | ) | (42,496 | ) | — | — | |||||||||||||||||
Lease termination costs(5) | — | (11,673 | ) | (11,673 | ) | — | — | — | — | |||||||||||||||||||
Loss from continuing operations before interest, other income (expense), and income taxes | (32,924 | ) | (32,614 | ) | (83,276 | ) | (104,401 | ) | (86,620 | ) | (13,132 | ) | (16,630 | ) | ||||||||||||||
Net loss from continuing operations(6) | (32,430 | ) | (31,343 | ) | (81,504 | ) | (87,262 | ) | (50,021 | ) | (30,269 | ) | (42,105 | ) | ||||||||||||||
Net loss from continuing operations per common share (basic and diluted) | (1.09 | ) | (1.05 | ) | (2.73 | ) | (2.92 | ) | (1.68 | ) | (1.03 | ) | (1.47 | ) | ||||||||||||||
Average number of common shares and equivalents outstanding (basic and diluted) | 29,874 | 29,871 | 29,871 | 29,858 | 29,816 | 29,650 | 28,515 |
As of: | ||||||||||||||||||||||||
September 30, | December 31, | December 29, | December 30, | December 31, | January 1, | |||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | 2005 | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 85,325 | $ | 67,302 | $ | 53,868 | $ | 39,902 | $ | 30,957 | $ | 4,313 | ||||||||||||
Total current assets | 124,817 | 143,477 | 161,228 | 220,568 | 196,373 | 139,765 | ||||||||||||||||||
Total assets | 250,039 | 304,097 | 402,727 | 836,141 | 917,114 | 535,968 | ||||||||||||||||||
Total current liabilities(7) | 48,840 | 70,894 | 50,329 | 387,366 | 829,131 | 298,531 | ||||||||||||||||||
Total debt and capital leases(7) | 215 | 245 | 1,599 | 60,664 | 516,149 | 154,185 | ||||||||||||||||||
Total liabilities(7) | 69,932 | 91,338 | 112,397 | 519,721 | 965,561 | 587,041 | ||||||||||||||||||
Total shareholders’ equity (deficit)(8) | 180,107 | 212,759 | 290,330 | 316,420 | (48,447 | ) | (51,073 | ) |
(1) | On January 31, 2005, Voyager acquired all the outstanding ownership interest in Voyager Expanded Learning, Inc., or VEL. The results of VEL’s operations subsequent to the acquisition on January 31, 2005 are combined with the results of two minor acquisitions (ExploreLearning and LearningA-Z), one made in 2004 and one made in 2005, to form the Voyager Education segment reported as continuing operations in Voyager’s consolidated financial statements. | |
(2) | Voyager implemented a plan to sell its ProQuest Business Solution, or PQBS, and ProQuest Information and Learning, or PQIL, operations during the second quarter of 2006. The sale of PQBS was completed in November 2006 and the sale of PQIL was completed in February 2007. Results of operations for PQBS and PQIL are excluded from results from continuing operations for all periods presented. | |
(3) | In 2008, 2007 and 2006, respectively, operating expenses include corporate costs of $14.9 million, $34.1 million, and $46.2 million, the majority of which are associated with the closing of Voyager’s Ann Arbor offices, financial |
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restatements, and completion of the sale of PQBS and PQIL. The transition of corporate offices from Ann Arbor, Michigan to Dallas, Texas was completed by year-end 2008. |
(4) | The required annual or interim testing for impairment of goodwill resulted in goodwill impairment for the Voyager Education business unit for the second and third quarters of 2009 and for 2008, 2007 and 2006. |
(5) | In 2008, Voyager entered into a series of agreements with its landlord regarding the termination of certain obligations in relation to the long term leases for its facilities in Ann Arbor, Michigan. Voyager terminated and was released from all obligations relating to these leases on March 7, 2008, resulting in a total charge to expense in the first quarter of 2008 for all lease termination costs. | |
(6) | Net loss from continuing operations for 2004 includes a deferred tax expense of $25.1 million to reflect the impact of establishing a valuation allowance against deferred tax assets as a result of restatement adjustments. | |
(7) | Upon closing on the sale of PQBS on November 28, 2006, Voyager made a pro rata payment of 89% of the principal then outstanding under Voyager’s 5.45% senior notes due October 1, 2012, Voyager’s 5.38% senior notes due January 31, 2015 and Voyager’s 2005 five-year unsecured revolving credit facility. Upon closing on the sale of PQIL on February 9, 2007, Voyager paid its remaining balances owed to its bank lenders and noteholders and was released from all obligations under its 2002 note purchase agreement, its 2005 note purchase agreement, and its five-year unsecured revolving credit facility. | |
(8) | Shareholders’ equity for 2006 reflects the $347.7 million gain from the sale of PQBS. Shareholders’ equity for 2007 reflects the $46.6 million gain from the sale of PQIL. |
Nine Months Ended | Year Ended | |||||||
September 30, 2009 | December 31, 2008 | |||||||
(in thousands, except per share amounts) | ||||||||
Net sales | $ | 157,012 | $ | 188,810 | ||||
Total operating expenses | (149,147 | ) | (224,583 | ) | ||||
Goodwill impairment | (36,280 | ) | (119,107 | ) | ||||
Embezzlement and related expenses | 195 | (7,254 | ) | |||||
Lease termination costs | — | (11,673 | ) | |||||
Loss from operations before interest, other income (expense), and income taxes | (28,220 | ) | (173,807 | ) | ||||
Gain from settlement with previous stockholders | — | 30,202 | ||||||
Net loss | (42,762 | ) | (154,396 | ) | ||||
Net loss per common share (basic and diluted) | (0.98 | ) | (3.53 | ) | ||||
Average number of common shares and equivalents outstanding (basic and diluted) | 43,790 | 43,790 |
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As of | ||||
September 30, | ||||
2009 | ||||
(in thousands) | ||||
Cash and cash equivalents | $ | 18,076 | ||
Total current assets | 95,996 | |||
Total assets | 431,475 | |||
Total current liabilities | 72,522 | |||
Total long-term debt and capital lease obligations, less current maturities | 150,489 | |||
Total liabilities | 269,320 | |||
Total shareholders’ equity | 162,155 |
Nine Months Ended September 30, 2009 | Year Ended December 31, 2008 | |||||||||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||||||||||
Cambium | Cambium | |||||||||||||||||||||||
Cambium(1) | Voyager(2) | and Voyager | Cambium(1) | Voyager(2) | and Voyager | |||||||||||||||||||
Basic loss per common share | $ | (0.80 | ) | $ | (1.09 | ) | $ | (0.98 | ) | $ | (3.40 | ) | $ | (2.73 | ) | $ | (3.53 | ) | ||||||
Diluted loss per common share | $ | (0.80 | ) | $ | (1.09 | ) | $ | (0.98 | ) | $ | (3.40 | ) | $ | (2.73 | ) | $ | (3.53 | ) | ||||||
Book value per common share at period end | $ | 2.68 | $ | 6.03 | $ | 3.70 | $ | 3.33 | $ | 7.12 | — (3 | ) | ||||||||||||
Shares used to compute book value per share | 20,454,312 | 29,874,145 | 43,789,995 | 20,454,312 | 29,874,145 | 43,789,995 |
(1) | Cambium shares represent the number of shares of Holdings common stock to be received by Cambium’s sole stockholder upon completion of the mergers, not including the 3,846,154 shares of Holdings common stock to be purchased by the sole stockholder of Cambium immediately prior to the effective time of the mergers or the shares issuable upon exercise of the Holdings Warrant. |
(2) | Voyager shares used for book value per share are the number of shares outstanding as of September 30, 2009. |
(3) | Information regarding the pro forma book value per common share at December 31, 2008 is not available. |
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Nine Months Ended September 30, 2009 | ||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
Cambium | Voyager | Adjustments | Combined | |||||||||||||
(in thousands) | ||||||||||||||||
Net loss | $ | (16,309 | ) | $ | (32,430 | ) | $ | 5,977 | $ | (42,762 | ) | |||||
Reconciling items between net loss and EBITDA: | ||||||||||||||||
Income tax benefit | (5,043 | ) | (81 | ) | 5,124 | — | ||||||||||
Interest and other (income) expenses, net | 14,891 | (413 | ) | 64 | 14,542 | |||||||||||
Depreciation and amortization | 19,611 | 14,605 | (6,266 | ) | 27,950 | |||||||||||
Earnings (loss) from operations before interest and other income (expense), income taxes, depreciation and amortization (EBITDA) | 13,150 | (18,319 | ) | 4,899 | (270 | ) | ||||||||||
Non-recurring or non-operating costs included in EBITDA but excluded from Adjusted EBITDA: | ||||||||||||||||
Goodwill impairment(8) | 9,105 | 27,175 | — | 36,280 | ||||||||||||
Embezzlement and related expenses(1) | (195 | ) | — | — | (195 | ) | ||||||||||
IntelliTools office closure(2) | 40 | — | — | 40 | ||||||||||||
Merger related costs(3) | 2,427 | 6,146 | (8,573 | ) | — | |||||||||||
Non-recurring Voyager corporate overhead costs primarily related to Voyager’s delinquent SEC filings and transition of the corporate office(4) | — | 2,213 | — | 2,213 | ||||||||||||
Temporary purchase accounting impact of the reduction in Voyager’s deferred revenues and related deferred costs(5) | — | — | 279 | 279 | ||||||||||||
Stock based compensation expense(10) | — | 220 | 710 | 930 | ||||||||||||
Adjusted EBITDA | $ | 24,527 | $ | 17,435 | $ | (2,685 | ) | $ | 39,277 | |||||||
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Year Ended December 31, 2008 | ||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
Cambium | Voyager | Adjustments | Combined | |||||||||||||
(in thousands) | ||||||||||||||||
Net loss | $ | (69,560 | ) | $ | (81,504 | ) | $ | (3,332 | ) | $ | (154,396 | ) | ||||
Reconciling items between net loss and EBITDA: | ||||||||||||||||
Income tax benefit | (13,422 | ) | (1,160 | ) | 184 | (14,398 | ) | |||||||||
Interest and other income (expenses), net | 19,415 | (612 | ) | 754 | 19,557 | |||||||||||
Gain from settlement with previous stockholders(6) | (30,202 | ) | — | — | (30,202 | ) | ||||||||||
Loss on extinguishment of debt(7) | 5,632 | — | — | 5,632 | ||||||||||||
Depreciation and amortization | 27,419 | 21,358 | (11,138 | ) | 37,639 | |||||||||||
Loss from operations before interest and other income (expense), income taxes, depreciation and amortization (EBITDA) | (60,718 | ) | (61,918 | ) | (13,532 | ) | (136,168 | ) | ||||||||
Non-recurring or non-operating costs excluded from Adjusted EBITDA: | ||||||||||||||||
Goodwill impairment(8) | 75,966 | 43,141 | — | 119,107 | ||||||||||||
Embezzlement and related expenses(1) | 7,254 | — | — | 7,254 | ||||||||||||
Lease termination costs(9) | — | 11,673 | — | 11,673 | ||||||||||||
IntelliTools office closure(2) | 287 | — | — | 287 | ||||||||||||
Merger related costs(3) | 26 | — | (26 | ) | — | |||||||||||
Non-recurring Voyager corporate overhead costs primarily related to Voyager’s delinquent SEC filings and transition of the corporate office(4) | — | 18,069 | — | 18,069 | ||||||||||||
Temporary purchase accounting impact of the reduction in Voyager’s deferred revenues and related deferred costs(5) | — | — | 8,054 | 8,054 | ||||||||||||
Non-recurring change in control payments(11) | — | — | 2,690 | 2,690 | ||||||||||||
Stock based compensation expense(10) | — | 878 | 947 | 1,825 | ||||||||||||
�� | ||||||||||||||||
Adjusted EBITDA | $ | 22,815 | $ | 11,843 | $ | (1,867 | ) | $ | 32,791 | |||||||
(1) | During 2008, Cambium discovered certain irregularities relating to the control and use of cash and certain other general ledger items which resulted in a substantial misappropriation of assets over a period of more than four years. These irregularities were perpetrated by a former employee, resulting in embezzlement losses, net of recoveries. For further information, see Note A to Cambium’s Consolidated Financial Statements included in this proxy statement/prospectus. | |
(2) | In late 2007, Cambium decided to close its IntelliTools office in Petaluma, California. In fiscal 2008, Cambium leased a smaller facility in Petaluma, California, and, in fiscal 2009, the Petaluma office was closed. The expenses added back in the table above represent the rent and other operating costs for the Petaluma office from January 2008 until its closure. | |
(3) | Adjustment is to eliminate external incremental costs incurred by Cambium and Voyager that are directly related to the merger transaction. In the Unaudited Pro Forma Condensed Combined Statements of Operations included in this proxy statement/prospectus, these costs are eliminated as a pro forma adjustment in calculating the pro forma combined net loss. |
(4) | Represents corporate overhead costs for Voyager that are primarily related to the restatement of Voyager’s financial statements and the related activities for Voyager to become current with its SEC filings, costs to transition Voyager’s corporate office from Ann Arbor, Michigan to Dallas, Texas, and internal costs required to complete the strategic alternatives process that culminated in the proposed merger transaction. Going forward, Holdings expects to incur ongoing corporate overhead and public company costs of approximately $4 million annually. For the year ended December 31, 2008, the adjustment represents the total costs of these activities less the $4 million estimate which Holdings considers to be ongoing. Because Voyager’s restatement process and the relocation of Voyager’s corporate headquarters were substantially completed by the end of fiscal 2008, non-recurring corporate costs for the nine months ended September 30, 2009 are primarily related to internal costs of Voyager’s strategic alternative process. |
(5) | Under applicable accounting guidance for business combinations, an acquiring entity is required to recognize all of the assets acquired and liabilities assumed in a transaction at the acquisition date fair value. For |
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purposes of the Pro Forma Unaudited Condensed Combined Statement of Operations for the Year Ended December 31, 2008 on page 159 and the Pro Forma Unaudited Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2009 on page 160, net sales have been reduced by $9.5 million and $0.3 million, respectively, due to the pro forma write-down of deferred revenue to its estimated fair value as of January 1, 2008. The write-down was determined by estimating the cost to fulfill the related future customer obligations plus a normal profit margin. Related deferred costs have been written to a fair value of zero, resulting in a partially offsetting reduction to cost of sales of $1.4 million for the year ended December 31, 2008 and $34,000 for the nine months ended September 30, 2009. The net sales adjustment less the cost of sales adjustment is presented above. The adjustment of deferred revenue and deferred costs to fair value is required only at the purchase accounting date; therefore, its impact on net sales and costs of sales is non-recurring. |
(6) | For fiscal 2008, Cambium received a settlement payment from previous stockholders of Cambium relating to the embezzlement suffered by Cambium. For further information, see Note A to Cambium’s Consolidated Financial Statements included in this proxy statement/prospectus. |
(7) | For fiscal 2008, Cambium recorded a loss on the extinguishment of debt related to the modification of its senior secured credit facility and senior unsecured promissory notes resulting from the execution of an amendment of those documents and the delivery by the lenders of a permanent waiver. The associated unamortized deferred financing costs and amendment fees related to the permanent waiver are included in the loss on extinguishment of debt. For further information, see Note G to Cambium’s Consolidated Financial Statements included in this proxy statement/prospectus. |
(8) | For additional information on goodwill impairment charges, see Note F to Cambium’s Consolidated Financial Statements included in this proxy statement/prospectus, Note 5 to Voyager’sYear-End Consolidated Financial Statements, and Note 8 to Voyager’s Interim Consolidated Financial Statements included in this proxy statement/prospectus. | |
(9) | Lease termination charges are for the discontinuance of office space and other leases resulting from the transition of Voyager’s corporate headquarters from Ann Arbor, Michigan to Dallas, Texas. For further information, see Note 16 to Voyager’s Consolidated Financial Statements included in this proxy statement/prospectus. |
(10) | For the period from January 1, 2007 through April 11, 2007, Cambium held in escrow $0.6 million in connection with stock-based awards. As a result of the settlement with the former stockholders in 2008, the rights to the $0.6 million held in escrow were foregone. This amount was recorded as income in interest and other expenses in Cambium’s historical statement of operations for 2008 and, accordingly, is excluded from EBITDA. Cambium had no stock-based compensation expense for the nine months ended September 30, 2009. Voyager’s historical statements of operations include stock-based compensation expense of $0.9 million for 2008 and $0.2 million for the nine months ended September 30, 2009. The Unaudited Pro Forma Condensed Consolidated Statements of Operations include an adjustment of $0.9 million for 2008 and $0.7 million for the nine months ended September 30, 2009 for estimated stock-based compensation expense related to stock option grants by Holdings (which become effective upon consummation of the mergers) to Messrs. Klausner, Cappellucci, Almond, Campbell, and Logue. |
(11) | The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2008 includes a pro forma adjustment to record certain contractual obligations, retention and other payments that become payable as a result of the merger, subject to subsequent service requirements of up to one year. |
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Nine Months Ended September 30, 2009 | ||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
Cambium | Voyager | Adjustments | Combined | |||||||||||||
(in thousands) | ||||||||||||||||
Adjusted EBITDA | $ | 24,527 | $ | 17,435 | $ | (2,685 | ) | $ | 39,277 | |||||||
Additional adjustments allowed to EBITDA per the Cambium credit agreement: | ||||||||||||||||
Equity cure | 2,959 | — | — | 2,959 | ||||||||||||
Certain operating taxes | 620 | — | — | 620 | ||||||||||||
Management fees | 150 | — | 46 | 196 | ||||||||||||
Employee severance | 55 | — | — | 55 | ||||||||||||
Certain legal costs | 115 | — | — | 115 | ||||||||||||
Other | 18 | — | — | 18 | ||||||||||||
Adjusted EBITDA per the Cambium credit agreement | $ | 28,444 | $ | 17,435 | $ | (2,639 | ) | $ | 43,240 | |||||||
Year Ended December 31, 2008 | ||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
Cambium | Voyager | Adjustments | Combined | |||||||||||||
(in thousands) | ||||||||||||||||
Adjusted EBITDA | $ | 22,815 | $ | 11,843 | $ | (1,867 | ) | $ | 32,791 | |||||||
Additional adjustments allowed to EBITDA per the Cambium credit agreement: | ||||||||||||||||
Certain operating taxes | 703 | — | — | 703 | ||||||||||||
Management fees | 199 | — | (51 | ) | 148 | |||||||||||
Employee severance | 604 | — | — | 604 | ||||||||||||
Certain legal costs | 292 | — | — | 292 | ||||||||||||
Restructuring expense | 507 | — | — | 507 | ||||||||||||
Interest income | 86 | — | — | 86 | ||||||||||||
Other | 183 | — | — | 183 | ||||||||||||
Adjusted EBITDA per the Cambium credit agreement | $ | 25,389 | $ | 11,843 | $ | (1,918 | ) | $ | 35,314 | |||||||
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• | to the extent that the current market price of Voyager common stock reflects an increase resulting from a market assumption that the transaction will be completed, the market price of Voyager common stock may decline by the value attributed to this assumption, or could decline even more; | |
• | Voyager may be required to pay a termination fee of up to $7.5 million if the mergers are terminated under specified circumstances, and if any of this fee were to be paid, Voyager would experience a material negative effect on its financial condition and results of operations; | |
• | an adverse reaction from Voyager’s investors and potential investors may reduce future opportunities for financings or business combinations; | |
• | the pendency of the mergers, as well as customary covenants in the merger agreement that limit each party’s ability to take specified actions without the other party’s consent, may cause Voyager to defer or potentially lose business opportunities that it might have otherwise pursued; | |
• | matters relating to the mergers require substantial commitments of time and resources by Voyager’s management, which could otherwise have been devoted to other opportunities that may have been beneficial to Voyager; and | |
• | Voyager’s costs and expenses related to the transaction, including legal and accounting fees and fees payable to Voyager’s financial advisors, as well as expenses relating to printing of proxy materials and solicitation of proxies, must be paid even if the mergers are not completed. |
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• | actual or anticipated variations in Holdings’ financial results; | |
• | changes in estimates or recommendations by securities analysts, if any, covering Holdings’ common stock; | |
• | the failure of the combined company to meet analysts’ expectations; | |
• | conditions or trends in the industry in which Cambium and Voyager operate, including governmental or regulatory changes affecting education; | |
• | announcements by Holdings or its competitors of significant acquisitions, strategic partnerships or divestitures; | |
• | additions or departures of key personnel of the combined company; | |
• | the entry into, or termination of, key agreements or arrangements affecting Holdings’ business or operations; and | |
• | future sales of Holdings’ securities, including sales of common stock by its directors and officers or its strategic investors. |
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• | vest Holdings’ board of directors with the sole power to set the number of directors of the combined company; | |
• | provide that Holdings’ board of directors will be elected on a staggered term basis, so that generally only one-third of the board will be elected at each annual meeting of stockholders; | |
• | limit the persons that may call special meetings of stockholders; | |
• | establish advance notice requirements for stockholder proposals and director nominations; and | |
• | limit stockholder action by written consent. |
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• | a substantial portion of the cash provided from operations will be committed to the payment of Cambium Learning’s debt service and will not be available for other purposes; | |
• | the combined company’s ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions may be limited; and | |
• | the level of indebtedness of the combined company may limit its flexibility in reacting to changes in the combined company’s business environment. |
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• | the inability to successfully combine the businesses of Cambium and Voyager in a manner that permits the combined company to achieve the cost savings (which Holdings estimates to be approximately $10 million per year) and revenue synergies anticipated to result from the mergers, which would result in the anticipated benefits of the mergers not being realized partly or wholly in the time frame currently anticipated or at all; |
• | lost sales and customers as a result of certain customers of either of the two companies deciding not to do business with the combined company; | |
• | complexities associated with managing the combined businesses; | |
• | integrating personnel from the two companies while maintaining focus on providing consistent, high quality products and customer service; | |
• | potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the mergers; and | |
• | performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the mergers. |
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• | general economic trends; | |
• | state and local budgets for education; | |
• | the traditional cyclical nature of educational material sales; | |
• | school, library and consumer purchasing decisions; | |
• | unpredictable funding of schools and libraries by federal, state and local governments; | |
• | consumer preferences and spending trends; | |
• | the need to increase inventories in advance of the primary selling season; and | |
• | the timing of introductions of new products and services. |
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• | the adoption of the merger agreement; and | |
• | the adjournment of the Voyager special meeting, if necessary, to allow time for further solicitation of proxies if there are insufficient votes present at the meeting, in person or by proxy, to adopt the merger agreement. |
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• | on the Internet, as described on the proxy card; | |
• | by telephone, as described on the proxy card; or | |
• | by mail, by completing and returning the enclosed proxy card. |
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• | send a written, dated notice to the Secretary of Voyager at Voyager’s principal executive offices stating that you are revoking your proxy; | |
• | complete, date and submit a new later-dated proxy card; | |
• | vote at a later date by telephone or by using the Internet; or | |
• | vote in person at the Voyager special meeting. However, your attendance alone will not revoke your proxy. |
Voyager Learning Company
1800 Valley View Lane, Suite 400
Dallas, Texas 75234
Voyager Learning Company
Public and Investor Relations
1800 Valley View Lane, Suite 400
Dallas, TX 75234
Telephone:214-932-9476
Email: soverbeck@voyagerlearning.com
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• | at the holder’s election, either: |
• | one share of Holdings common stock, or | |
• | $6.50 in cash, subject to proration rules referred to below; plus, regardless of the election made, |
• | an amount in cash equal to the amount of specified tax refunds received by Voyager prior to the closing of the mergers (as reduced by the amount of the Voyager tax refunds contractually required to be placed in escrow at closing), divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers; plus | |
• | a CVR, which represents the right to receive cash in an amount equal to the aggregate amount of specified tax refunds received after the closing of the mergers and various other amounts deposited in escrow on or after the closing date, as reduced by any payments to be made under the escrow agreement with respect to agreed contingencies, a working capital adjustment and Stockholders’ Representative expenses, divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers. |
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The first set of diagrams reflects the overall structure of the merger agreement: | ||
• In step 1A, an investor associated with VSS formed Holdings. | ||
• In step 1B, Holdings formed two wholly owned subsidiaries, Voyager merger sub and Cambium merger sub. | ||
• In step 1C, a step that will be taken after all conditions to closing have been satisfied or waived, Voyager merger sub will merge with and into Voyager and Cambium merger sub will merge with and into Cambium. As a result of step 1C, Voyager and Cambium will each become wholly owned subsidiaries of Holdings upon completion of these mergers. | ||
• In step 1D, upon completion of the mergers: |
• Holdings will issue common stock and the Holdings Warrant to VSS-Cambium Holdings III, LLC, which will become the sole stockholder of Cambium pursuant to the transactions described below under “— Repositioning the Owner of Cambium,” in exchange for all of the outstanding capital stock of Cambium; and | ||
• Holdings will issue common stockand/or cash, as elected, additional cash and a CVR to the stockholders of Voyager in exchange for all of the outstanding capital stock of Voyager. |
• Step 1E reflects the ownership structure of Holdings following the completion of the mergers (excluding any subsidiaries of Cambium or Voyager). |
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• In step 2A, VSS-Cambium Holdings, LLC contributed the capital stock of Cambium Learning toVSS-Cambium Holdings, IV, LLC, a newly formed, wholly owned subsidiary of VSS-Cambium Holdings, LLC; concurrently, VSS-Cambium Holdings IV, LLC assumed the obligations of VSS-Cambium Holdings, LLC under Cambium Learning’s senior secured and senior unsecured credit agreements. | ||
• In step 2B, VSS formed a wholly owned subsidiary, VSS-Cambium Holdings III, LLC, which in turn formed two wholly owned subsidiaries, VSS-Cambium Holdings III Acquisition, LLC and VSS-Cambium Holdings II Corp. | ||
• In step 2C, VSS-Cambium Holdings III, LLC entered into an agreement providing for VSS-Cambium Holdings, LLC to merge into VSS-Cambium Holdings III Acquisition, LLC, withVSS-Cambium Holdings, LLC being the surviving entity; upon completion of that merger, VSS-Cambium Holdings III, LLC will own, directly or indirectly, 100% of VSS-Cambium Holdings, LLC, VSS-Cambium Holdings IV, LLC, Cambium Learning and its subsidiaries, andVSS-Cambium Holdings II Corp. | ||
• In step 2D, VSS-Cambium Holdings III, LLC entered into a contribution agreement pursuant to which it has agreed to transfer its interests in VSS-Cambium Holdings, LLC (acquired upon completion of the merger described in step 2C) to VSS-Cambium Holdings II Corp., which will, upon completion of this contribution, own, directly or indirectly, 100% of VSS-Cambium Holdings, LLC, VSS-Cambium Holdings IV, LLC, and Cambium Learning and its subsidiaries, as illustrated in step 2E. The merger described in step 2C and the contribution described in section 2D must take place prior to the effective time. | ||
• Step 2E reflects the ownership structure of VSS-Cambium Holdings II Corp. immediately prior to the completion of the mergers. |
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• In step 3A, immediately prior to the completion of the mergers, Voyager’s operating company, Voyager Expanded Learning, Inc., will contribute its LearningA-Z and ExploreLearning business units to a newly formed, wholly owned subsidiary named LAZEL, Inc. | ||
• In step 3B, also immediately prior to the completion of the mergers, Voyager Expanded Learning, Inc. will transfer all of the capital stock of LAZEL, Inc. to Voyager. | ||
• Step 3C reflects the ownership structure of Voyager’s subsidiaries immediately following the contribution of LAZEL, Inc.’s common stock to Voyager. |
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• In step 3D, contemporaneously with the completion of the mergers, VSS-Cambium Holdings IV, LLC, a wholly owned subsidiary of VSS-Cambium Holdings, LLC, will contribute to Cambium Learning approximately $60 million to $65 million of membership interests in VSS-Cambium Holdings IV, LLC. | ||
• In step 3E, Cambium Learning will buy 100% of the outstanding capital stock of Voyager Expanded Learning, Inc., in exchange for $75 million, consisting of approximately $10 million to $15 million of cash and the balance in membership interests of VSS-Cambium Holdings IV, LLC. | ||
• Step 3F reflects the ownership structure of Holdings following the purchase by Cambium Learning of Voyager Expanded Learning, Inc. | ||
• Step 3G reflects the LAZEL, Inc. dropdown, as required by the amendments to the credit agreements. |
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• | Cambium’s board of directors determined that the Cambium merger, the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Cambium and its stockholder; | |
• | Holdings’ board of directors determined that the mergers, the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Holdings and its stockholder; and | |
• | both the Cambium board of directors and the Holdings board of directors unanimously approved the merger agreement and the transactions contemplated thereby prior to the execution of the merger agreement. |
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• | the complementary nature of the product offerings of Cambium and Voyager and the minimal level of overlap in the two companies’ offerings, primarily resulting from the fact that the two companies target different tiers of intervention; | |
• | the scale efficiencies achievable to the combined companies by substantially expanding the size of their combined business, since Cambium and Voyager had combined 2008 revenues in excess of $198 million; | |
• | the likelihood that the combination would improve the combined companies’ ability to compete with other market participants, several of which are substantially larger and have access to substantially more resources than either Cambium or Voyager alone; | |
• | the operational synergies achievable through: |
• | a larger inside and outside sales force with a national reach, capable of covering an expanded geographical scope within the pre-K-12 grade intervention market; | |
• | the ability to expand the business’ marketing reach across substantially all products and services sold by either Cambium or Voyager; | |
• | the ability to leverage the two companies’ respective strengths in math programs; | |
• | the ability of Voyager and Cambium to leverage each other’s sales channels, creating opportunities: |
• | to increase the inside sales force and thereby help Cambium products reach smaller school districts; | |
• | to sell certain Voyager products through Cambium’s supplemental catalog; and | |
• | to sell Voyager products through Cambium Learning Technologies’ resellers; |
• | the current and historical market prices of Voyager’s common stock, which demonstrated to Cambium’s board that the current price was depressed, making the acquisition a better value than it would have been had Voyager been trading at higher market prices; | |
• | the value of the Holdings common stock to be received by Cambium’s stockholder in the Cambium merger and to be received in exchange for a $25 million capital contribution to be made by Cambium’s stockholder immediately prior to the effective time, including the possibility that the value of Holdings common stock may increase after the completion of the mergers; in this regard, the boards of directors considered: |
• | the expected combined earnings of Voyager and Cambium; |
• | the potential cost savings of approximately $10 million per year that could result from the mergers, as described on page 15 of this proxy statement/prospectus under the caption “SUMMARY — Financial Synergies.” |
• | Holdings’ expected financial position after the mergers and its ability to create future growth opportunities; and | |
• | that the $25 million capital contribution was required in order to achieve a relative valuation between Voyager and Cambium to enable Cambium’s stockholder to own approximately 55% of Holdings common stock immediately after the mergers; |
• | the alternative of seeking to grow Cambium internally as opposed to combining with Voyager and the potential increased risks, costs and expenses associated with seeking benefits through internal growth comparable to the benefits which the boards of directors of Cambium and Holdings expect to realize through the combination of Cambium and Voyager; |
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• | the state of the education market and limitations on the sources of funding for customers, including the significant financial constraints on customers as a result of current macroeconomic difficulties, and the benefits associated with dealing with these challenges as a combined company; | |
• | the stimulus moneys to be made available pursuant to the American Recovery and Reinvestment Act and the opportunities that may be available to the combined company under that Act, since the combined company will be able to offer a wider variety of products and services, and thus will have the potential to receive a greater amount of stimulus funds than Cambium alone; | |
• | the fact that Voyager’s management team has resolved several significant issues that absorbed significant management attention in the past, namely the restatement of its financial statements and the settlement of class action litigation, and the fact that Voyager’s management team has demonstrated the type of leadership necessary to manage the combined company; | |
• | the ability and likelihood of Cambium and Voyager to complete the mergers, including their ability to obtain necessary regulatory approvals and the obligations to attempt to obtain those approvals, and measures taken by Cambium and Voyager to provide reasonable assurance to each other that the mergers will occur, including the provisions of the merger agreement that require Voyager or Cambium to compensate the other in some circumstances if the mergers do not occur; | |
• | the restrictions under the credit agreements and that the transactions had been structured as a merger in order to comply with those restrictions, supported by the confirmation from the administrative agents and their respective counsel that a lenders’ consent or waiver was not required in order to complete the mergers and the Holdings III Merger Transactions in light of the manner in which they were structured; | |
• | the ability of Cambium and Holdings to require Voyager to perform its obligations under the merger agreement, including the obligation to close the mergers if the applicable conditions to closing have been satisfied or waived, through the specific performance provision in the merger agreement, and Cambium’s right to terminate the merger agreement at any time, for any reason not otherwise specified in the merger agreement, subject only to its obligation to pay to Voyager a termination fee of $4.5 million; and | |
• | other terms of the merger agreement, including the representations, warranties and covenants, and the conditions to each party’s obligation to complete the mergers. |
• | the risk that the mergers might not be completed in a timely manner or at all, and the expenses that have been and will be incurred even if the mergers are not completed; | |
• | Voyager’s ability to entertain a subsequent acquisition proposal if various conditions are satisfied, including that the proposal was not solicited by Voyager and Voyager’s board of directors determines that the proposal could reasonably be expected to lead to a superior proposal; | |
• | Voyager’s right to terminate the merger agreement, in specified circumstances before stockholder approval of the adoption of the merger agreement, in order to enter into an acquisition transaction with a third party that Voyager’s board of directors determines to be a superior proposal, if Voyager pays a termination fee of $7.5 million to Cambium; | |
• | the risk of diverting Cambium management’s focus from other strategic opportunities and operational matters to implementing the Cambium merger; |
• | the difficulties associated with integrating Voyager and Cambium and the risk that anticipated operating synergies and cost savings (as described on page 15 under the caption “SUMMARY — Financial Synergies.”) will not be achieved; |
• | the risk that the steps to be taken to achieve certain cost savings, such as the elimination of certain jobs, could adversely affect operating results; and |
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• | the interests that the managements of both Voyager and Cambium have in the proposed transaction, including offers of future employment with the combined company that may involve increased cash compensation and incentive compensation awards, and the possibility that potential conflicts of interest may affect their judgment. |
• | the historical market prices and trading information with respect to Voyager common stock, and that the implied merger consideration of $5.20 per share to $6.76 per share, based on the assumed maximum available cash of $67.5 million to be distributed to Voyager stockholders (excluding any cash from tax refunds to be distributed to Voyager stockholders) and assumed Holdings cash net income trading multiples ranging from 8.0x to 14.0x, the range of cash net income trading multiples identified by Allen & Company as the lower end of the multiple range among comparable public companies reviewed by Allen & Company for purposes of valuation, and applied by Allen & Company to calculate an implied Holdings equity value of between approximately $140 million and $245 million, represented a premium of approximately: |
• | 126% to 194%, based on the closing price of Voyager common stock on June 15, 2009; |
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• | 146% to 221%, based on the average closing price of Voyager common stock for the month ended June 15, 2009; and | |
• | 243% to 346%, based on the average closing price of Voyager common stock for the six months ended June 15, 2009; |
• | the value of the merger consideration to be received by Voyager stockholders in the Voyager merger, including the fact that stockholders may receive a portion of the consideration in cash, which provides more certainty of value to stockholders than all-stock consideration; |
• | the financial presentation of Allen & Company and its opinion dated June 20, 2009 to Voyager’s board of directors as to the fairness, from a financial point of view and as of that date, of the consideration to be received by Voyager stockholders in the Voyager merger, as more fully described below in “— Opinion of Voyager’s Financial Advisors” on page 81 and in the written opinion of Allen & Company attached to this proxy statement/prospectus as Annex E; |
• | the presentation of Houlihan Smith and its opinion dated June 20, 2009 to Voyager’s board of directors as to the solvency of Holdings after and giving effect to the mergers, as more fully described in “— Opinion of Voyager’s Financial Advisors” on page 81 and in the written opinion of Houlihan Smith attached to this proxy statement/prospectus as Annex F; |
• | the value of the merger consideration in light of the current and historical market value of Voyager, as measured by the trading prices of its common stock, which Voyager’s board of directors believed was undervalued in part due to the persisting effects of material accounting irregularities identified in 2006, compared to those of its competitors; | |
• | the potential that the value of Holdings common stock would increase after the completion of the mergers and that Voyager stockholders would share in any increase in that value. In this regard, the board of directors considered: |
• | the expected combined earnings of Voyager and Cambium; |
• | the potential cost savings of approximately $10 million per year that could result from the mergers, as described on page 15 of this proxy statement/prospectus under the caption “SUMMARY — Financial Synergies”; and |
• | Holdings’ expected financial position after the mergers and its ability to create future growth opportunities; |
• | various alternatives to the Voyager merger, including continuing to operate as an independent enterprise, and the risks associated with those alternatives, including Voyager’s size, financial resources and product lines compared to the size, financial resources and product lines of its competitors; | |
• | the lack of competitive solicitations of interest from other entities to engage in an acquisition transaction with Voyager received during the sale process; | |
• | the value of the merger consideration in light of the state of the education market and sources of funding, including the significant financial constraints on customers as a result of current macroeconomic difficulties; | |
• | the ability of Voyager and Cambium to use the companies’ complementary strengths not only to remedy the deficiencies that contributed to recent declines in each of Voyager’s and Cambium’s net sales and profitability in 2008 and 2007, but also to grow the combined company, including: |
• | the ability to leverage the position of Cambium and its products and services in the education market together with Voyager’s established products, services and market position to expand the overall scope of product offerings and market presence for the combined company, and | |
• | the ability to integrate the Cambium and Voyager management teams to create a team capable of successfully leading the combined company from its inception; |
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• | the ability and likelihood of Voyager and Cambium to complete the mergers, including their ability to obtain necessary regulatory approvals and the obligations to attempt to obtain those approvals, and measures taken by Voyager and Cambium to provide reasonable assurance to each other that the mergers will occur, including the provisions of the merger agreement that require Voyager or Cambium to compensate the other in some circumstances if the mergers do not occur; | |
• | Voyager’s ability to entertain subsequent acquisition proposals if various conditions are satisfied, including that the proposal was not solicited by Voyager and Voyager’s board of directors determines that the proposal could reasonably be expected to lead to a superior proposal; | |
• | Voyager’s right to terminate the merger agreement, in specified circumstances before stockholder approval of the adoption of the merger agreement, in order to enter into an acquisition transaction with a third party that Voyager’s board of directors determines to be a superior proposal, if Voyager pays a termination fee of $7.5 million to Cambium; | |
• | the fact that the Voyager merger is not subject to any financing condition other than the absence of a default under Cambium’s credit agreements; | |
• | the relative benefits to Voyager stockholders of structuring the transaction as an exchange under Section 351 of the Internal Revenue Code for U.S. federal income tax purposes; | |
• | the fact that Voyager stockholders who receive Holdings common stock pursuant to the Voyager merger will receive registered shares of common stock; | |
• | the fact that the Stockholders’ Representative will act as the representative of the former Voyager stockholders to enforce obligations under the escrow agreement and other post-closing obligations of Holdings, Cambium and their respective subsidiaries; | |
• | the effect of the mergers on Voyager’s customers and employees, including the compatibility of the parties’ cultures and the funding of post-closing benefits to be paid to specified employees; and | |
• | other terms of the merger agreement, including the representations, warranties and covenants, and the conditions to each party’s obligation to complete the mergers. |
• | the risk that the mergers might not be completed in a timely manner or at all, in which case Voyager will have expended significant human and financial resources on a failed transaction; | |
• | the merger agreement provides that: |
• | the amount of cash available for cash elections is limited to a maximum of $67.5 million, including a maximum of $42.5 million to be made available by Voyager, even though Voyager’s available cash at the time of the closing may exceed that amount; and | |
• | if the cash elections would result in a payment of cash in excess of the maximum amount available for cash elections at the effective time of the mergers (i.e., if there is a cash oversubscription), the cash elections will be subject to proration so that, in the aggregate, the cash consideration payable to holders of Voyager common stock will not exceed the maximum cash consideration amounts; |
• | the fact that the Publicly Traded Education Comparables analysis and the Comparable Precedent Transactions analysis performed by Allen & Company revealed that a portion of the range of EBITDA multiples implied by the merger consideration were in some cases lower than the range of EBITDA multiples for comparable publicly-traded education publishing companies and transaction multiples from education publishing companies, respectively; | |
• | the restrictions on Voyager’s ability to solicit or engage in discussions with a third party about an alternative transaction and the requirement that Voyager pay Cambium a termination fee of $7.5 million in order for Voyager’s board of directors to accept a superior proposal; |
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• | Cambium’s right to terminate the merger agreement at any time, for any reason not otherwise specified in the merger agreement, subject only to its obligation to pay to Voyager a termination fee of $4.5 million; | |
• | the potential difficulty of collecting any termination fees from Cambium, VSS or their respective affiliates and the resulting inability to receive the negotiated remedy if the merger agreement is terminated under circumstances in which Voyager is entitled to a termination fee and cannot recoup any of its costs; | |
• | the risk of diverting Voyager management’s focus from other strategic opportunities and operational matters to implementing the Voyager merger; |
• | the potential conflicts of interest of some Voyager executive officers related to future employment and compensation (including equity compensation), and potential conflicts of interest of some Voyager executive officers and directors related to continuation of indemnification obligations, all as more fully discussed in “THE MERGERS — Interests of Voyager’s Directors and Officers in the Mergers” on page 101; |
• | the fact that the Stockholders’ Representative will have a contractually limited capacity to protect the interests of the former Voyager stockholders after the closing of the Voyager merger; | |
• | the possibility of customer, supplier, management and employee disruption associated with the mergers; | |
• | the possibility that the treatment of the mergers under Cambium’s credit agreements could cause a default under the credit agreements and the possibility that Cambium could be required to repay debt outstanding under those agreements; | |
• | the possibility that Cambium might, prior to the closing of the mergers, default under its credit agreements; | |
• | the fact that Holdings’ indebtedness following the mergers could reduce Holdings’ ability to respond to changing business conditions; and |
• | the difficulties in combining Voyager and Cambium and the risk that expected cost savings (as described on page 15 under the caption “SUMMARY — Financial Synergies”) will not be achieved. |
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2009P | ||||
(in thousands) | ||||
Revenue | $ | 107,485 | ||
Expenses | (101,800 | ) | ||
Gross Margin | $ | 5,684 | ||
Depreciation and Amortization | 24,363 | |||
Other Adjustments | 977 | |||
EBITDA(1) | $ | 31,024 | ||
EBITDA Margin(1) | 28.9 | % |
(1) | Calculated in accordance with the definition of Consolidated EBITDA set forth in Cambium’s senior secured credit agreement. |
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Enterprise Value/ EBITDA(1) | Equity Value / Cash Net Income(1) | |||||||||||||||
Company | LTM | 2009E | LTM | 2009E | ||||||||||||
Scholastic | 5.4x | 5.9x | 42.3 | x | 13.6 | x | ||||||||||
K12 | 13.0x | 10.6x | 31.8 | x | 34.9 | x | ||||||||||
School Specialty | 6.6x | 6.5x | 11.3 | x | 10.7 | x | ||||||||||
Renaissance Learning | 9.4x | 9.9x | 19.2 | x | 20.4 | x | ||||||||||
Princeton Review | 9.7x | 9.6x | 37.7 | x | 20.2 | x | ||||||||||
Plato Learning | 5.6x | 7.1x | NM | NM | ||||||||||||
Scientific Learning | 12.5x | 9.5x | NM | NM |
(1) | Enterprise value and equity value were calculated as of June 19, 2009. |
Range of Selected Multiples from | ||||
Range of Multiples Implied | Comparable Publicly-Traded | |||
by the Merger Consideration | Education Publishing Companies | |||
Enterprise Value/LTM EBITDA | 7.1x - 10.6x | 5.4x - 13.0x | ||
Enterprise Value/2009E EBITDA | 4.6x - 6.8x | 5.9x - 10.6x | ||
Equity Value/LTM Cash Net Income | 34.4x - 44.8x | 11.3x - 42.3x | ||
Equity Value/2009E Cash Net Income | 19.8x - 25.8x | 10.7x - 34.9x |
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EV/LTM | ||||||||
LTM | EBITDA | |||||||
Target | Acquiror | Sales | EBITDA | Multiple | ||||
Abrams & Company Publishers | Learning Trends | NA | NA | NA | ||||
Sundance/Newbridge Publishing | Rowman & Littlefield | 0.3x | NM | NA | ||||
Thomson Learning Inc | Investor Group & Others | 4.6x | 15.0x | 14.5x | ||||
Harcourt Education | Houghton Mifflin Co. / Pearson Plc | 3.0x | 17.5x | 16.9x | ||||
Learning Horizons Inc | Learning Horizons Holding Corp. | NA | NA | NA | ||||
JIST Publishing Inc | EMC Corp. | NA | NA | NA | ||||
Roxbury Publishing Co. | Oxford University Press Inc. | NA | NA | NA | ||||
Cambium Learning Inc. | Veronis Suhler Stevenson | 3.0x | 11.2x | 11.2x | ||||
Von Hoffmann Corpz | RR Donnelley & Sons Co. | 0.8x | NA | NA | ||||
Scientific Explorer | Elmers Products Inc. | NA | NA | NA | ||||
Houghton Mifflin, Inc. | Riverdeep Interactive Learning | 2.6x | 11.0x | 11.2x | ||||
Delta Education Inc. | School Specialty Inc. | 3.5x | 15.9x | 15.2x | ||||
American Guidance Services | Pearson Education | 3.6x | 9.1x | 8.4x | ||||
Voyager Expanded Learning | ProQuest | 4.0x | 9.8x | 8.6x | ||||
Options Publishing, Inc. | Haights Cross Communications | 2.7x | 16.5x | 14.7x | ||||
Malmberg Investments BV | SanomaWSOY | 2.6x | 9.4x | 7.5x | ||||
Editis (Vivendi Publishing) | Wendel | 1.9x | NA | NA | ||||
Marcel Dekker | Taylor & Francis | 3.3x | NA | NA | ||||
Cinar | Investor Group | 1.6x | 8.9x | 6.2x | ||||
Houghton Mifflin Co. | Investor Consortium | 1.4x | 9.5x | 6.0x | ||||
Editis (Vivendi Publishing) | Lagardere | 1.2x | 10.0x | 6.2x | ||||
Houghton Mifflin Co. | Vivendi Universal | 2.2x | 9.0x | 6.4x | ||||
Harcourt General Higher Education | Thomson Corporation | 2.3x | 11.0x | 7.7x | ||||
Harcourt General | Reed Elsevier | 2.4x | 9.2x | 6.4x | ||||
Tribune Education Co. & Landoll | McGraw-Hill | 2.0x | 11.0x | 6.9x |
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Range of Selected Transaction | ||||
Range of Multiples implied | Multiples from Education | |||
by the Merger Consideration | Publishing Companies | |||
Enterprise Value/LTM EBITDA | 7.1x - 10.6x | 8.9x - 17.5x | ||
Adjusted Enterprise Value/LTM EBITDA | 7.1x - 10.6x | 6.0x - 16.9x |
Four Week | Six Month | |||||
Range of Merger | Average | Average | ||||
Consideration per Share | Current Share Price | Share Price | Share Price | |||
$2.30 | $2.11 | $1.51 | ||||
$5.20 - $6.76 | 126% - 194% | 146% - 221% | 243% - 346% |
Range of Merger | Voyager | Implied | ||
Consideration per Share | Value per Share | Premium | ||
$5.20 - $6.76 | $2.10 - $3.67 | 84% - 148% |
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• | on a pro forma basis, the Fair Value and Present Fair Saleable Value (as defined in the solvency opinion and described below) of the assets of Holdings, as applicable, would exceed the sum of its respective probable liabilities, including all contingent and other liabilities (as defined in the solvency opinion and described below), on its respective existing debts as such debts become absolute and matured; |
• | Holdings and its subsidiaries will be able to pay their respective debts as they become due in the ordinary course of their respective businesses on a consolidated basis; |
• | the capital remaining in Holdings and its subsidiaries after the mergers would not be unreasonably small for the respective business in which it is engaged, as Voyager’s management has indicated it is as of the date of the opinion and is proposed to be conducted following the consummation of the mergers; |
• | the Fair Value of Holdings’ assets exceeds the value of its liabilities, including all contingent and other liabilities, by an amount that is greater than its stated capital amount; and |
• | the sum of the assets of Holdings, as applicable, at fair value is greater than all its respective debts at fair valuation. |
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($ in thousands)
Base Case | Year 1(a) | Year 2 | Year 3 | Year 4 | ||||||||||||
Revenue | $ | 199,692 | $ | 212,971 | $ | 228,820 | $ | 244,679 | ||||||||
Operating Margin % | 3.08 | % | 10.01 | % | 12.86 | % | 14.40 | % | ||||||||
EBITDA Margin % | 23.80 | % | 28.69 | % | 30.23 | % | 30.28 | % | ||||||||
Capital Expenditures (as a % of Sales) | 4.64 | % | 4.73 | % | 4.62 | % | 4.58 | % | ||||||||
Working Capital (as a % of Sales) | 0.03 | % | 0.24 | % | 0.27 | % | 0.25 | % |
Low Case | Year 1 | Year 2 | Year 3 | Year 4 | ||||||||||||
Revenue | $ | 189,776 | $ | 194,808 | $ | 202,483 | $ | 212,463 | ||||||||
Revenue Difference | (4.97 | )% | (8.53 | )% | (11.51 | )% | (13.17 | )% | ||||||||
Operating Margin % | (6.92 | )% | 0.76 | % | 4.86 | % | 8.90 | % | ||||||||
Operating Margin Difference | (10.00 | )% | (9.25 | )% | (8.00 | )% | (5.50 | )% | ||||||||
EBITDA Margin % | 13.80 | % | 19.44 | % | 22.23 | % | 24.78 | % | ||||||||
EBITDA Margin Difference | (10.00 | )% | (9.25 | )% | (8.00 | )% | (5.50 | )% | ||||||||
Capital Expenditures (as a % of Sales) | 3.14 | % | 3.2 | % | 3.4 | % | 3.3 | % | ||||||||
Capital Expenditures Difference | (1.50 | )% | (1.50 | )% | (1.25 | )% | (1.25 | )% | ||||||||
Working Capital (as a % of Sales) | (0.18 | )% | 0.10 | % | 0.15 | % | 0.18 | % | ||||||||
Working Capital Difference | (0.20 | )% | (0.14 | )% | (0.12 | )% | (0.07 | )% |
High Case | Year 1 | Year 2 | Year 3 | Year 4 | ||||||||||||
Revenue | $ | 205,642 | $ | 224,456 | $ | 245,651 | $ | 265,136 | ||||||||
Revenue Difference | 2.98 | % | 5.39 | % | 7.36 | % | 8.36 | % | ||||||||
Operating Margin % | 10.08 | % | 16.51 | % | 16.86 | % | 17.40 | % | ||||||||
Operating Margin Difference | 7.00 | % | 6.50 | % | 4.00 | % | 3.00 | % | ||||||||
EBITDA Margin % | 30.80 | % | 35.19 | % | 34.23 | % | 33.28 | % | ||||||||
EBITDA Margin Difference | 7.00 | % | 6.50 | % | 4.00 | % | 3.00 | % | ||||||||
Capital Expenditures (as a % of Sales) | 5.14 | % | 5.2 | % | 5.1 | % | 5.1 | % | ||||||||
Capital Expenditures Difference | 0.50 | % | 0.50 | % | 0.50 | % | 0.50 | % | ||||||||
Working Capital (as a % of Sales) | 0.14 | % | 0.33 | % | 0.34 | % | 0.29 | % | ||||||||
Working Capital Difference | 0.11 | % | 0.08 | % | 0.07 | % | 0.03 | % |
(a) | Year 1, Year 2, Year 3 and Year 4 (the “Projected Period”) are intended to be the four annual periods directly following the date on which Houlihan Smith delivered its solvency opinion. The Voyager management projections utilized for the years in the Projected Period are projections for each of the years ending December 31, 2009, 2010, 2011 and 2012, respectively. |
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Total Enterprise Value / | Total Enterprise Value / | |||||||
Company Name | 2009 Revenue | 2009 EBITDA | ||||||
Educational Services: | ||||||||
Voyager Learning Company | NM | NM | ||||||
Plato Learning, Inc. | 0.8x | 5.2x | ||||||
Princeton Review Inc. | 1.3x | 11.7x | ||||||
Scientific Learning Corp. | 0.7x | 15.1x | ||||||
K12, Inc. | 1.5x | 11.4x | ||||||
School Specialty Inc. | 0.7x | 6.6x | ||||||
Renaissance Learning Inc. | 2.1x | NM | ||||||
Mean | 1.2x | 10.0x | ||||||
Median | 1.1x | 11.4x | ||||||
Publishing and Printing: | ||||||||
John Wiley & Sons Inc. | 1.8x | 9.5x | ||||||
The McGraw-Hill Companies, Inc. | 1.9x | 7.6x | ||||||
Scholastic Corporation | 0.6x | 6.1x | ||||||
Mean | 1.4x | 7.7x | ||||||
Median | 1.8x | 7.6x |
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Total Enterprise Value / | Total Enterprise Value / | |||||||
Company Name | 2009 Revenue | 2009 EBITDA | ||||||
For-Profit Higher Education: | ||||||||
Apollo Group Inc. | 2.1x | 7.1x | ||||||
Capella Education Co. | 2.0x | �� | 9.1x | |||||
Corinthian Colleges Inc. | 1.0x | 7.2x | ||||||
DeVry, Inc. | 2.0x | 10.2x | ||||||
Career Education Corp. | 0.8x | 6.3x | ||||||
American Public Education, Inc. | 3.6x | 12.1x | ||||||
Strayer Education Inc. | 5.0x | 14.1x | ||||||
Lincoln Educational Services | ||||||||
Corporation | 1.1x | 6.6x | ||||||
ITT Educational Services Inc. | 2.6x | 7.0x | ||||||
Universal Technical Institute Inc. | 0.8x | 9.8x | ||||||
Mean | 2.1x | 9.0x | ||||||
Median | 2.0x | 8.2x | ||||||
Blended Statistics: | ||||||||
Mean | 1.6x | 8.9x | ||||||
Median | 1.6x | 9.1x |
Implied | Implied | |||||||||
Seller/Target | Seller/Target | |||||||||
Enterprise Value / | Enterprise Value / | |||||||||
Buyer / Investor | Seller/Target | Revenues | EBITDA | |||||||
Educational Services: | ||||||||||
Plato Learning, Inc. (NasdaqGM:TUTR) | NetSchools Corporation | 9.5x | NA | |||||||
Scientific Learning Corp. (NasdaqCM:SCIL) | Soliloquy Learning, Inc. | 7.5x | NA | |||||||
Veronis Suhler Stevenson | Cambium Learning, Inc. | 3.2x | 10.5x | |||||||
Bain Capital, LLC | Bright Horizons Family Solutions Inc. | 1.7x | 12.8x |
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Implied | Implied | |||||||||
Seller/Target | Seller/Target | |||||||||
Enterprise Value / | Enterprise Value / | |||||||||
Buyer / Investor | Seller/Target | Revenues | EBITDA | |||||||
Excelligence Learning Corp. | Thoma Bravo | 0.9x | 13.9x | |||||||
Questar Educational Systems, Inc. | Questar Assessment, Inc. (OTCPK:QUSA) | 1.2x | 5.0x | |||||||
Sterling Partners; Citigroup Private Equity | Educate, Inc. | 1.5x | 13.1x | |||||||
Princeton Review Inc. (NasdaqGM:REVU) | Test Services, Inc. | 2.6x | NA | |||||||
Scientific Learning Corp. (NasdaqCM:SCIL) | Soliloquy Learning, Inc. | 7.5x | NA | |||||||
Knowledge Learning Corp. | Kindercare Learning Centers, Inc. | 1.1x | 6.4x | |||||||
Snap-on Inc. (NYSE: SNA) | Snap-on Business Solutions, Inc. | 2.5x | 8.4x | |||||||
Mean | 3.6x | 10.0x | ||||||||
Median | 2.5x | 10.5x | ||||||||
Publishing and Printing: | ||||||||||
John Wiley & Sons Inc. (NYSE:JW.A) | Blackwell Publishing (Holdings) Ltd. | 2.3x | 11.6x | |||||||
Houghton Mifflin Company | Reed Elsevier plc, Harcourt US Schools Education Business | 2.4x | NA | |||||||
Pearson plc (LSE: PSON) | Reed Elsevier Group Plc, Harcourt Assessment, Inc. and Harcourt Education Ltd. | 1.8x | NA | |||||||
Boston Ventures Management, Inc. | Oakstone Publishing, LLC | 1.4x | NA | |||||||
Triumph Learning, LLC | Buckle Down Publishing Company | 2.5x | 9.9x | |||||||
Mean | 2.1x | 10.8x | ||||||||
Median | 2.3x | 10.8x | ||||||||
For-Profit Higher Education: | ||||||||||
DeVry, Inc. (NYSE:DV) | U.S. Education Corporation | 2.0x | 11.7x | |||||||
CMP Technology | Think Services, Inc. | 2.0x | NA | |||||||
Liberty Partners | Concorde Career Colleges Inc. | 1.1x | 12.2x | |||||||
Capella Education Co. | Various | 0.5x | 3.8x | |||||||
MindLeaders.com | ThirdForce plc (ISE: QPO) | 0.6x | 4.7x | |||||||
Mean | 1.2x | 8.1x | ||||||||
Median | 1.1x | 8.2x | ||||||||
Blended Statistics: | ||||||||||
Mean | 2.3x | 9.6x | ||||||||
Median | 2.0x | 9.8x |
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Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||
Total Revenues | $ | 205,642 | $ | 224,456 | $ | 245,651 | $ | 265,136 | ||||||||
EBITDA | $ | 63,342 | $ | 78,981 | $ | 84,094 | $ | 88,226 | ||||||||
Less: Income Tax (Expense)/Benefit | (1,308 | ) | (6,093 | ) | (7,454 | ) | (8,985 | ) | ||||||||
Gross Cash Flow | $ | 62,034 | $ | 72,888 | $ | 76,641 | $ | 79,241 | ||||||||
Less: Additions in Working Capital | (285 | ) | (733 | ) | (825 | ) | (759 | ) | ||||||||
Less: Capital Expenditures | (10,569 | ) | (11,734 | ) | (12,585 | ) | (13,456 | ) | ||||||||
Enterprise Net Cash Flow | $ | 51,180 | $ | 60,421 | $ | 63,230 | $ | 65,027 |
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Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||
Total Revenues | $ | 199,692 | $ | 212,971 | $ | 228,820 | $ | 244,679 | ||||||||
EBITDA | $ | 47,530 | $ | 61,097 | $ | 69,180 | $ | 74,079 | ||||||||
Less: Income Tax (Expense)/Benefit | — | — | (1,211 | ) | (5,372 | ) | ||||||||||
Gross Cash Flow | $ | 47,530 | $ | 61,097 | $ | 67,969 | $ | 68,707 | ||||||||
Less: Additions in Working Capital | (53 | ) | (517 | ) | (617 | ) | (618 | ) | ||||||||
Less: Capital Expenditures | (9,265 | ) | (10,069 | ) | (10,579 | ) | (11,194 | ) | ||||||||
Enterprise Net Cash Flow | $ | 38,212 | $ | 50,511 | $ | 56,773 | $ | 56,895 |
Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||
Total Revenues | $ | 189,776 | $ | 194,808 | $ | 202,483 | $ | 212,463 | ||||||||
EBITDA | $ | 26,193 | $ | 37,867 | $ | 45,019 | $ | 52,639 | ||||||||
Less: Income Tax (Expense)/Benefit | — | — | — | — | ||||||||||||
Gross Cash Flow | $ | 26,193 | $ | 37,867 | $ | 45,019 | $ | 52,639 | ||||||||
Less: Additions in Working Capital | 333 | (196 | ) | (299 | ) | (389 | ) | |||||||||
Less: Capital Expenditures | (5,958 | ) | (6,288 | ) | (6,830 | ) | (7,064 | ) | ||||||||
Enterprise Net Cash Flow | $ | 20,567 | $ | 31,382 | $ | 37,889 | $ | 45,186 |
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Low Case | Base Case | High Case | ||||||||||
$ in thousands | ||||||||||||
Market Approach — Guideline Public Company Method | $ | 277,130 | $ | 379,666 | $ | 456,226 | ||||||
Market Approach — Comparable Transactions Method | $ | 301,996 | $ | 407,160 | $ | 485,498 | ||||||
Income Approach — DCF Method | $ | 476,900 | $ | 623,900 | $ | 720,500 | ||||||
Average Fair Value — Enterprise | $ | 352,009 | $ | 470,242 | $ | 554,075 | ||||||
Add: Cash(1) | 4,279 | 4,279 | 4,279 | |||||||||
Deduct: Interest Bearing Debt(1) | (166,500 | ) | (166,500 | ) | (166,500 | ) | ||||||
Excess Capital(2) | $ | 189,788 | $ | 308,021 | $ | 391,854 | ||||||
Balance Sheet Test | Pass | Pass | Pass |
(1) | Per March 31, 2009 pro forma consolidated balance sheet, as provided by Voyager’s management |
(2) | Excess capital indicates solvent, a deficit would indicate insolvent |
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Cash Flow & Capital Adequacy Test — Low Case
Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||
Cash Flow From Operations: | ||||||||||||||||
EBITDA | $ | 26,193 | $ | 37,867 | $ | 45,019 | $ | 52,639 | ||||||||
Cash Taxes | — | — | — | — | ||||||||||||
Cash Interest Expense | (15,688 | ) | (15,269 | ) | (15,389 | ) | (15,520 | ) | ||||||||
Change in Working Capital | 333 | (196 | ) | (299 | ) | (389 | ) | |||||||||
Operating Cash Flow | 10,838 | 22,402 | 29,330 | 36,730 | ||||||||||||
Capital Expenditures | (5,958 | ) | (6,288 | ) | (6,830 | ) | (7,064 | ) | ||||||||
Operating Cash Flow Available for Principal Repayment | $ | 4,880 | $ | 16,114 | $ | 22,500 | $ | 29,666 | ||||||||
Cash Flow From Financing: | ||||||||||||||||
Scheduled Principal Repayments | (2,445 | ) | (2,404 | ) | (2,317 | ) | (2,372 | ) | ||||||||
Net Cash Flow | 2,435 | 13,709 | 20,183 | 27,294 | ||||||||||||
Beginning Cash | 4,279 | 6,714 | 20,423 | 40,606 | ||||||||||||
Ending Cash | $ | 6,714 | $ | 20,423 | $ | 40,606 | $ | 67,900 |
Cash Flow & Capital Adequacy Test — Base Case
Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||
Cash Flow From Operations: | ||||||||||||||||
EBITDA | $ | 47,530 | $ | 61,097 | $ | 69,180 | $ | 74,079 | ||||||||
Cash Taxes | — | — | (1,211 | ) | (5,372 | ) | ||||||||||
Cash Interest Expense | (15,688 | ) | (15,269 | ) | (15,389 | ) | (15,520 | ) | ||||||||
Change in Working Capital | (53 | ) | (517 | ) | (617 | ) | (618 | ) | ||||||||
Operating Cash Flow | 31,790 | 45,311 | 51,963 | 52,569 | ||||||||||||
Capital Expenditures | (9,265 | ) | (10,069 | ) | (10,579 | ) | (11,194 | ) | ||||||||
Operating Cash Flow Available for Principal Repayment | $ | 22,525 | $ | 35,242 | $ | 41,384 | $ | 41,375 | ||||||||
Cash Flow From Financing: | ||||||||||||||||
Scheduled Principal Repayments | (2,445 | ) | (2,404 | ) | (2,317 | ) | (2,372 | ) | ||||||||
Net Cash Flow | 20,080 | 32,838 | 39,066 | 39,002 | ||||||||||||
Beginning Cash | 4,279 | 24,359 | 57,196 | 96,263 | ||||||||||||
Ending Cash | $ | 24,359 | $ | 57,196 | $ | 96,263 | $ | 135,265 |
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• | On a pro forma basis, the Fair Value and Present Fair Saleable Value of the assets of Holdings, as applicable, would exceed the sum of its respective probable liabilities, including all Contingent and Other Liabilities, on its respective existing debts as such debts become absolute and matured, following the consummation of the mergers; |
• | Holdings and its subsidiaries will be able to pay their respective debts as they become due in the ordinary course of their respective businesses on a consolidated basis; |
• | The capital remaining in Holdings and its subsidiaries after the mergers would not be unreasonably small for the respective business in which it is engaged, as Holdings’ management has indicated it is as of the date of the opinion and is proposed to be conducted following the consummation of the mergers; |
• | The Fair Value of Holdings’ assets exceeds the value of its liabilities, including all Contingent and other liabilities, by an amount that is greater than its stated capital amount; and |
• | The sum of the assets of Holdings, as applicable, at fair value is greater than all its respective debts at fair valuation. |
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• | with respect to the executive officers of Voyager, the receipt of severance, retention, change in control and other payments; | |
• | the retention of some of the officers of Voyager as officers or employees of Holdings or its subsidiaries; | |
• | the designation of two officers and one director of Voyager as directors of Holdings; | |
• | continuation of various indemnification and insurance obligations; | |
• | the treatment of stock options and stock appreciation rights held by Voyager executive officers and directors at the effective time; and | |
• | the grant of options to purchase 750,000, 250,000 and 300,000 shares of Holdings common stock under the Holdings 2009 Equity Incentive Plan to Mr. Klausner, Mr. Almond and Mr. Campbell, respectively, at the effective time of the mergers. |
• | 2009 Bonus: If a change in control occurs, and Mr. Surratt is terminated without cause, or terminates his employment for good reason, a pro rata portion of his guaranteed 2009 target annual bonus; | |
• | Change in Control Payment: If a change in control of Voyager occurs, a change in control payment in an amount equal to 50% of his base salary as in effect immediately prior to the date the payment is made, payable at the earliest of a change in control, termination of employment or December 31, 2009; | |
• | Severance Benefits: If Mr. Surratt is terminated without cause or resigns for good reason: |
• | a lump sum severance payment in an amount equal to the sum of 150% of his then current base salary and an amount equal to accrued but unused vacation days; and | |
• | until the earlier of two years from the date of termination and the date on which Mr. Surratt commences other employment which offers benefits substantially similar to, or better than, those provided by Voyager to its active employees, continuation in Voyager’s medical, dental and vision plans; |
• | SERP Replacement Payment: Payment in lieu of participation in Voyager’s prior supplemental executive retirement plan in an amount equal to 15% of base salary and management bonus; provided |
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that, if Mr. Surratt is terminated for any reason other than by Voyager with cause prior to the end of a calendar year, the payment will be adjusted to reflect his pro-rated salary for the portion of the year employed, and if a change in control occurs, the payment with respect to salary and bonus earned through the date of the change in control will be paid upon the change in control; and |
• | 280G Payment: If any “golden parachute” excise taxes are triggered by payments made by Voyager to Mr. Surratt in connection with the change in control, a“gross-up” payment to make Mr. Surratt whole for any federal excise tax imposed on any change in control or severance payments or benefits received by Mr. Surratt. |
Payment | Amount | |||
2009 Bonus(1) | $ | 573,750 | ||
Change in Control Payment | 337,500 | |||
Severance Benefits(2) | 1,012,500 | |||
SERP Replacement Payment(1) | 187,310 | |||
280G Payment(3) | 3,000,000 | |||
Total | $ | 5,111,060 | ||
(1) | This amount will be prorated if termination occurs prior to December 31, 2009. | |
(2) | Represents lump sum severance payment only. | |
(3) | Estimated potential maximum amount. This amount will be placed in escrow pursuant to the terms of an escrow agreement to be executed at the closing. See “RELATED AGREEMENTS — Escrow Agreement.” |
• | Severance Benefits: If Mr. Buchardt is terminated without cause or resigns: |
• | a lump sum severance payment in an amount equal to 100% of his then current base salary; | |
• | continuation in Voyager’s medical, dental and vision plans for a period of 18 months; and | |
• | a“gross-up” payment to cover any taxes imposed on the continuation of benefits, if any, including the tax reimbursement itself; |
• | 2009 Bonus Payment: If a change in control occurs in 2009 prior to or in connection with Mr. Buchardt’s termination of employment and Mr. Buchardt is not terminated for cause, a lump sum payment equal to the amount of his 2009 target annual bonus, which amount will be pro-rated if Mr. Buchardt resigns without good reason prior to December 31, 2009; | |
• | Transition Services Payment: If Mr. Buchardt is not terminated for cause, a transition services payment in an amount equal to 50% of his annualized base salary as in effect immediately prior to the date the payment is made, payable at the earlier of termination of employment other than for cause or December 31, 2009; |
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• | SERP Replacement Payment: Payment in lieu of participation in Voyager’s prior supplemental executive retirement plan in an amount equal to 15% of base salary and management bonus; provided that, if Mr. Buchardt is terminated for any reason other than by Voyager with cause prior to the end of the calendar year, the payment will be adjusted to reflect his pro-rated salary for the portion of the year employed; and | |
• | 280G Payment: If any “golden parachute” excise taxes are triggered by payments made by Voyager to Mr. Buchardt, a“gross-up” payment to make Mr. Buchardt whole for any federal excise tax imposed on any change in control or severance payments or benefits received by Mr. Buchardt. |
Payment | Amount | |||
Severance Benefits(1) | $ | 296,656 | ||
2009 Bonus Payment | 148,328 | |||
Transition Services Payment | 148,328 | |||
SERP Replacement Payment(2) | 66,747 | |||
Total | $ | 660,059 | ||
(1) | Represents lump sum severance payment only. | |
(2) | This amount will be prorated if termination occurs prior to December 31, 2009. |
• | 2009 Change in Control Bonus Payment: If the mergers are completed and Mr. Klausner has not been terminated for cause or resigned other than for good reason for a period of six months following the effective time, a payment in an amount equal to $751,906; | |
• | Change in Control Payment: If the mergers are completed and Mr. Klausner has not been terminated for cause or resigned other than for good reason for a period of six months following the effective time, a payment in an amount equal to $805,612; | |
• | Retention Bonus: If the mergers are completed and Mr. Klausner has not been terminated for cause or resigned other than for good reason for a period of one year following the effective time, a payment in an amount equal to $268,538; | |
• | Regular Severance Benefits: If Mr. Klausner is terminated without cause or resigns for good reason: |
• | after the effective time and prior to December 31, 2010, a payment equal to the greater of (i) 100% of his base salary or (ii) his target bonus for 2010; plus until the earlier of 18 months from the date of termination and the date on which Mr. Klausner commences other employment which offers benefits substantially similar to, or better than, those provided by Voyager to its active employees, continuation in Voyager’s medical, dental and vision plans; or | |
• | on or after January 1, 2011, salary continuation for a period of one year plus a pro rata portion of his annual bonus; plus, for 18 months from the date of termination, continuation in Voyager’s medical, dental and vision plans; |
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• | 280G Payment: If any “golden parachute” excise taxes are triggered by payments made to Mr. Klausner in connection with the change in control, a“gross-up” payment to make Mr. Klausner whole for any federal excise tax imposed on any change in control or severance payments or benefits received by Mr. Klausner; | |
• | Conversion of SARs: Mr. Klausner holds stock appreciation rights, or SARs, relating to 300,000 shares of Voyager. At the effective time, 100,000 of Mr. Klausner’s SARs will be terminated and 200,000 SARs, all of which were vested as of April 24, 2009, will be equitably adjusted to become fully vested SARs of Holdings; and | |
• | Award under Holdings 2009 Equity Incentive Plan: At the closing of the mergers, Mr. Klausner will be granted options to purchase 750,000 shares of Holdings common stock under Holdings’ 2009 equity incentive plan, which we refer to as the 2009 Incentive Plan. For more information, see “MANAGEMENT OF HOLDINGS FOLLOWING THE MERGERS — Holdings Employment Agreements.” |
Payment | Amount | |||
2009 Change in Control Bonus Payment | $ | 751,906 | ||
Retention Bonus | 268,538 | |||
Change in Control Payment | 805,612 | |||
Total | $ | 1,826,056 | ||
• | Acceleration of Long-Term Incentive Plan Awards: Mr. Almond’s employment terms letter provides for a cash Long Term Incentive Plan, or LTIP, award equal to $100,000 payable November 14, 2009 and $45,000 payable November 14, 2010, provided that he does not voluntarily terminate his employment without good reason prior to such payment dates; | |
• | Termination Without Cause LTIP Payment: If Mr. Almond is terminated without cause, any unpaid amounts under the LTIP will become immediately payable; and | |
• | Change in Control LTIP Payment: If a change in control occurs, all outstanding LTIP payment awards will accelerate and become due upon a change in control; | |
• | Regular Severance Benefits: If Mr. Almond is terminated without cause or resigns for good reason at any time: |
• | salary continuation in an amount equal to the sum of his then current base salary for 12 months and an amount equal to accrued but unused vacation days; and | |
• | until the earlier of 12 months from the date of termination and the date on which Mr. Almond commences other employment which offers benefits substantially similar to, or better than, those provided by Voyager to its active employees, continuation in Voyager’s medical, dental and vision plans; and |
• | Change in Control Bonus Payment: If a change in control occurs in 2009 and (i) Mr. Almond continues employment with Voyager, a successor or an affiliate through March 1, 2010; or |
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(ii) Mr. Almond is terminated without cause or resigns for good reason prior to March 1, 2010, a change in control bonus payment in the amount of $200,000 is payable on March 1, 2010. |
Payment | Amount | |||
LTIP Payment(1) | $ | 145,000 | ||
Change in Control Bonus Payment | 200,000 | |||
Total | $ | 345,000 | ||
(1) | Represents amount to be paid if a change in control occurs prior to November 14, 2009 and no LTIP payment has previously been made. |
• | Change in Control Bonus Payment: If a change in control occurs in 2009 and (i) Mr. Campbell continues employment with Voyager, a successor or an affiliate through March 1, 2010; or (ii) Mr. Campbell is terminated without cause prior to March 1, 2010, a change in control bonus payment in the amount of $265,000; and | |
• | Enhanced Severance Benefits: If Mr. Campbell is terminated without cause prior to December 31, 2009: |
• | continuation of his then current base salary for one year; and | |
• | until the earlier of 12 months from the date of termination and the date on which Mr. Campbell commences other employment which offers benefits substantially similar to, or better than, those provided by Voyager to its active employees, continuation in Voyager’s medical, dental and vision plans. |
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• | the retention of some of the officers of Cambium Learning as officers or employees of Holdings or its subsidiaries; | |
• | the designation of an officer of Cambium Learning and all of the directors of Cambium as directors of Holdings; and | |
• | the treatment of interests held by Cambium Learning’s officers in the Cambium Learning management incentive plan at the effective time of the mergers. |
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• | a citizen or resident of the United States; | |
• | a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States or any of its political subdivisions; | |
• | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more United States persons or (2) has a valid election in effect under applicable United States Treasury Regulations to be treated as a United States person; or | |
• | an estate that is subject to U.S. federal income tax on its income regardless of its source. |
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• | gain will be recognized on the exchange of Voyager common stock for Holdings common stock, CVRs and cash pursuant to the merger agreement equal to the lesser of: |
• | the excess of the sum of the fair market value of the Holdings common stock, the cash and the fair market value of the CVRs received pursuant to the merger agreement by such U.S. Holder over the U.S. Holder’s adjusted tax basis in the Voyager common stock surrendered pursuant to the merger agreement, and | |
• | the sum of the fair market value of the CVRs and the amount of cash received by the U.S. Holder pursuant to the merger agreement; |
• | no loss will be recognized by a U.S. Holder of Voyager common stock who receives Holdings common stock pursuant to the merger agreement; | |
• | the aggregate adjusted basis of the Holdings common stock received pursuant to the merger agreement by a U.S. Holder of Voyager common stock will be equal to the aggregate adjusted basis of the Voyager common stock surrendered by a U.S. Holder of Voyager common stock, reduced by the fair market value of the CVRs and the amount of cash received pursuant to the merger agreement and increased by any amount of gain that the U.S. Holder of Voyager common stock recognizes with respect to the transaction; | |
• | the holding period of the Holdings common stock received pursuant to the merger agreement by a U.S. Holder of Voyager common stock will include the holding period of the Voyager common stock exchanged for that Holdings common stock; and | |
• | in the case of a U.S. Holder who acquired different blocks of Voyager common stock at different times and at different prices, any gain or loss will be determined separately with respect to each block of Voyager common stock, and the sum of the fair market value of the CVRs and the amount of cash received will be allocated pro rata to each such block of stock; any such U.S. Holder should consult with its tax advisor regarding the manner in which the above rules would apply to such U.S. Holder. |
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• | is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or |
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• | provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and that such U.S. Holder is a U.S. person (including a U.S. resident alien) and otherwise complies with applicable requirements of the backup withholding rules. |
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• | Holdings; | |
• | Voyager; | |
• | VSS Cambium Holdings II Corp., which, prior to the effective time of the mergers, will be the indirect owner of all of the outstanding capital stock of Cambium Learning; | |
• | Voyager merger sub, which was formed solely for the purpose of enabling Holdings to acquire Voyager; | |
• | Cambium merger sub, which was formed solely for the purpose of enabling Holdings to acquire Cambium; and | |
• | the Stockholders’ Representative, which was formed solely for the purpose of representing the Voyager stockholders after the mergers described below are completed. |
• | Voyager merger sub will merge with and into Voyager. As a result of this merger, which we refer to as the “Voyager merger,” Voyager will become a wholly owned subsidiary of Holdings. By virtue of the completion of the Voyager merger, the stockholders of Voyager will cease to be stockholders of Voyager and their shares of Voyager stock will automatically be converted into the right to receive the merger consideration payable to Voyager stockholders pursuant to the merger agreement or, if they properly exercise their appraisal rights, the right to receive the consideration payable to dissenting stockholders pursuant to Section 262. | |
• | Cambium merger sub will merge with and into Cambium. As a result of this merger, which we refer to as the “Cambium merger,” Cambium will become a wholly owned subsidiary of Holdings. By virtue of the completion of the Cambium merger, the sole stockholder of Cambium will cease to be a stockholder of Cambium and its Cambium stock will automatically be converted into the right to |
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receive the merger consideration payable to Cambium’s sole stockholder pursuant to the merger agreement. |
• | subject to the election procedures described under “— Voyager Consideration — Stock or Cash Election” and “— Election Procedures for Voyager Stockholders,” either one share of Holdings common stock or $6.50 in cash, without interest; | |
• | a portion of certain agreed upon tax refunds that Voyager receives prior to the completion of the closing, which portion we refer to as the “Voyager Per Share Pre-closing Tax Refund Consideration” in this proxy statement/prospectus; and | |
• | a contingent value right, which we sometimes refer to as a “CVR” and which is described in additional detail below. |
• | 0.8448961 of a share of Holdings common stock; and | |
• | the right to purchase additional shares of Holdings common stock pursuant to a warrant, which we refer to in this proxy statement/prospectus as the “Holdings Warrant” and which is described in additional detail below. |
• | Voyager stockholders who elect to convert some or all of their Voyager common stock into Holdings common stock pursuant to the Voyager merger will be entitled to receive one share of Holdings common stock for each share of Voyager common stock subject to that election which is owned by them immediately prior to the effective time of the Voyager merger; | |
• | Voyager stockholders who fail to submit their election form at or before the election deadline described elsewhere herein will be entitled to receive one share of Holdings common stock for each share of Voyager common stock owned by them immediately prior to the effective time of the Voyager merger; | |
• | Voyager stockholders who exercise their appraisal rights pursuant to the procedures described elsewhere in this proxy statement/prospectus, but abandon their efforts to exercise such rights before receiving cash in accordance with such procedures, will be entitled to receive one share of Holdings common stock for each share of Voyager common stock owned by them immediately prior to the effective time of the Voyager merger; and | |
• | Voyager stockholders who elect to convert some or all of their Voyager common stock into cash pursuant to the Voyager merger will be entitled to receive $6.50 in cash for each share of Voyager |
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common stock that they elect to convert into cash and that is owned by them immediately prior to the effective time of the Voyager merger, subject to proration rules set forth in the merger agreement in the event that the cash payable pursuant to these elections exceeds a sum which we refer to in this proxy statement/prospectus as the “Total Cash for Cash Election.” The Total Cash for Cash Election equals $25 million plus a formula amount which we refer to in this proxy statement/prospectus as the “Available Voyager Cash for Cash Election.” To the extent that these proration rules preclude a Voyager stockholder from having all of the stockholder’s shares of Voyager common stock for which a cash election has been made converted into cash, the portion of the shares which are not converted into cash, which we refer to in this proxy statement/prospectus as the“Re-Designated Shares,” will be converted into Holdings common stock as if the stockholder had elected to have the Re-Designated Shares converted into Holdings common stock. |
Amount of Cash Available for | ||||
Cash Elections (the “Total | Shares of Holdings | |||
Cash for Cash Election”) | Cash Consideration | Common Stock | ||
$62,500,000 | $2,086.50 | 679 | ||
$65,000,000 | $2,171.00 | 666 | ||
$67,500,000 | $2,255.50 | 653 |
• | $42,500,000; and | |
• | the formula amount described below under the caption “— Closing Calculations.” |
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• | the aggregate proceeds, if any, payable under the contingent value rights agreement described below, which represents the right to receive certain Voyager Tax Refunds received by Voyager or Holdings within the first 18 months after the effective time, the Voyager Tax Refund Holdback Amount, the remaining amount, if any, reserved under the escrow agreement described below with respect to certain liabilities under Section 280G of the Internal Revenue Code and certain other amounts contemplated in the escrow agreement, in each case net of certain agreed upon liabilities, all as further described in the contingent value rights agreement and the escrow agreement;divided by | |
• | the aggregate number of shares of Voyager common stock outstanding immediately prior to the effective time. |
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• | Cambium Specified Asset Recoupment Amount. On or about April 26, 2008, prior to the issuance of Cambium Learning’s 2007 year-end financial statements, Cambium Learning undertook an internal investigation that revealed irregularities involving the control and use of cash and certain other general ledger accounts, resulting from a misappropriation of assets. These irregularities were perpetrated by a former employee over more than a three-year period beginning in 2004 and continuing through April 2008. For purposes of this proxy statement/prospectus: |
• | The phrase “Net Windle Proceeds” means the difference between: (i) the cash proceeds received by Cambium and its subsidiaries from and after June 1, 2009 from any indemnity payment, insurance payment or any other payment or recovery arising from or related to any judgment, arbitration, order, decree, settlement negotiation or other proceeding, whether criminal or civil in nature, in connection with the theft, fraud, malfeasance and other conduct committed by the former Cambium employee or any other person involved in such conduct with the former employee against Cambium and its subsidiaries, but only to the extent such cash proceeds are used to retire or extinguish indebtedness under Cambium’s existing credit agreements,minus(ii) anyout-of-pocket costs and expensesand/or tax liabilities directly incurred from and after the closing in connection with the collection or recovery of the amounts described in the preceding clause, including, without limitation, any attorney, accountant, investigator and other professional fees. | |
• | To date, Cambium has recovered approximately $535,000 of Net Windle Proceeds. Cambium believes that the likely maximum amount of Net Windle Proceeds is $4,250,000, although Cambium cannot assure you that it will recover any more than it has recovered to date. Accordingly, Cambium believes that the Cambium Special Asset Recoupment Amount will be in the range of 37,038 to 294,230 shares. | |
• | The phrase “Cambium Specified Asset Recoupment Amount” equals 0.45, multiplied by the quotient of the Net Windle Proceeds divided by $6.50. |
• | Additional Share Amount. The phrase “Additional Share Amount” equals the lesser of: |
• | 145,000; and | |
• | the number of shares of Voyager common stock in excess of 29,874,145 which are outstanding immediately prior to the effective time and which (i) do not otherwise result in an adjustment, at or prior to the effective time, to the number of shares of Holdings common stock to be issued under the merger agreement and (ii) are surrendered for exchange pursuant to the merger agreement on or prior to the second anniversary of the closing. | |
• | We expect that the Additional Share amount will be zero, although it could be up to 145,000 shares. |
• | Formula Amount. As described below under “— Cambium’s Credit Agreements,” there are instances in which Cambium may be required by the merger agreement to make equity cure payments to cure defaults under Cambium Learning’s existing senior secured and senior unsecured credit agreements prior to the closing. There are also instances in which VSS or related entities may: |
• | acquire and then retire indebtedness outstanding under Cambium Learning’s credit agreements (with a balance of $166.7 million as of September 30, 2009); |
• | make equity contributions which result in the retirement of indebtedness outstanding under Cambium Learning’s credit agreements; or | |
• | make limited payments to obtain waivers under Cambium Learnings’ credit agreements. |
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By U.S. Mail to: | By Overnight Courier or Hand-Delivery to: | |
Wells Fargo Shareowner Services | Wells Fargo Shareowner Services | |
Corporate Actions Department | Corporate Actions Department | |
P.O. Box 64858 | 161 North Concord Exchange | |
St. Paul, Minnesota55164-0858 | South St. Paul, Minnesota 55075 |
Shareholder Relations Department
1-877-262-8260
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• | a certificate representing any shares of Holdings common stock that such stockholder is entitled to receive as merger consideration; | |
• | a check or wire transfer representing any cash that such stockholder is entitled to receive as merger consideration; and | |
• | a contingent value right. |
• | a certificate representing the shares of Holdings common stock that the Cambium stockholder is entitled to receive as merger consideration; and | |
• | the Holdings Warrant that the Cambium stockholder is entitled to receive as merger consideration. |
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• | Voyager’s and its subsidiaries’ proper organization, good standing and qualification to do business, Voyager’s ownership of its subsidiaries and Voyager’s governing instruments; | |
• | Voyager’s capitalization, including, in particular, the number of shares of Voyager common stock, stock options and stock appreciation rights outstanding; | |
• | Voyager’s corporate power and authority to enter into the merger agreement and other agreements referenced in the merger agreement and, subject to stockholder approval, to complete the transactions contemplated by these agreements; | |
• | the approval and recommendation by Voyager’s board of directors of the merger agreement and other agreements referenced in the merger agreement and the completion of the transactions contemplated by the merger agreement, including the Voyager merger; | |
• | the required consents and approvals of governmental entities in connection with the transactions contemplated by the merger agreement; | |
• | the absence of violations of or conflicts with Voyager’s and Voyager’s subsidiaries’ governing documents, applicable law or certain agreements as a result of entering into the merger agreement and other agreements referenced in the merger agreement and consummating the Voyager merger; | |
• | Voyager’s SEC filings since December 31, 2005, including the financial statements contained or incorporated therein and Voyager’s internal controls and disclosure controls and procedures; | |
• | the conduct of the business of Voyager and its subsidiaries between December 31, 2008 and June 20, 2009; | |
• | the absence of undisclosed liabilities; |
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• | the absence of a “material adverse effect” applicable to Voyager and its subsidiaries since December 31, 2008; | |
• | tax matters; | |
• | intellectual property; | |
• | title to or leasehold rights in real and personal property; | |
• | environmental matters; | |
• | material contracts and the performance of obligations thereunder; | |
• | employee benefit plans; | |
• | labor and employment matters; | |
• | legal proceedings, compliance with laws, licenses, permits and certain indemnification claims; | |
• | the absence of undisclosed broker’s fees; | |
• | Voyager’s and its subsidiaries’ insurance policies; | |
• | related party transactions involving Voyager and its subsidiaries; | |
• | the customers and vendors of Voyager and its subsidiaries; | |
• | accounts receivable and inventory; | |
• | prebilling and prepayment practices; | |
• | compliance with the Foreign Corrupt Practices Act and applicable export controls; | |
• | software used by Voyager and its subsidiaries; | |
• | actions that could affect the tax treatment of the transactions contemplated by the merger agreement; | |
• | the fairness opinion provided by Allen & Company to Voyager; | |
• | the vote required by Voyager stockholders to approve the Voyager merger; | |
• | accuracy and compliance as to form with applicable securities laws of this proxy statement/prospectus and the registration statement; | |
• | the inapplicability of certain anti-takeover statutes and plans; | |
• | bank accounts; and | |
• | transaction expenses. |
• | a disruption in financial, credit, banking or securities markets (including any disruption thereof and any decline in the price of any security or market index) or any interest rate or exchange rate changes, generally, which does not disproportionately affect Voyager and its subsidiaries, taken as a whole; | |
• | any material downturn in general business or economic condition to the extent it does not disproportionately affect Voyager and its subsidiaries, taken as a whole, compared to other participants in the industries in which Voyager and its subsidiaries operate; |
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• | any change attributable to the announcement or pendency of the transactions contemplated by the merger agreement, including any cancellations of or delays in customer agreements, any reduction in sales, any disruption in supplier, distributor, partner or similar relationships or any loss of employees, or resulting from or relating to compliance with the terms of, or the taking of any action required by, the merger agreement; | |
• | any change arising from or relating to any change after June 20, 2009 in generally accepted accounting principles as consistently applied by Voyager; | |
• | any change resulting from or relating to political or economic conditions, including acts of terrorism or war, to the extent it does not disproportionately affect Voyager and its subsidiaries, taken as a whole, compared to other participants in the industries in which Voyager and its subsidiaries operate; | |
• | any change arising from or relating to laws issued by any governmental authority after June 20, 2009 applicable to Voyager, Cambium and Holdings to the extent it does not disproportionately affect Voyager and its subsidiaries, taken as a whole, compared to other participants in the industries in which Voyager and its subsidiaries operate; | |
• | any change, in and of itself, in the market price or trading volume of Voyager common stock, provided that this factor will not exclude the underlying event or occurrence which may have caused such change in market price or trading volume; | |
• | the failure, in and of itself, by Voyager to meet or exceed any internal or public projections, forecasts or earnings predictions, provided that this factor will not exclude any event or occurrence which caused such failure; and | |
• | the taking of any action, or failure to take action, to which Cambium has expressly consented or approved in writing. |
• | Cambium’s and its subsidiaries’ proper organization, good standing and qualification to do business, Cambium’s ownership of its subsidiaries and Cambium’s governing instruments; | |
• | Cambium’s capitalization including, in particular, the number of shares of Cambium common stock outstanding; | |
• | Cambium’s corporate power and authority to enter into the merger agreement and other agreements referenced in the merger agreement and to complete the transactions contemplated by these agreements; |
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• | the approval and recommendation by Cambium’s board of directors of the merger agreement and other agreements referenced in the merger agreement and the completion of the transactions contemplated by the merger agreement, including the Cambium merger; | |
• | the required consents and approvals of governmental entities in connection with the transactions contemplated by the merger agreement; | |
• | the absence of violations of or conflicts with Cambium’s and Cambium’s subsidiaries’ governing documents, applicable law or certain agreements as a result of entering into the merger agreement and other agreements referenced in the merger agreement and completing the Cambium merger; | |
• | Cambium’s financial statements and accounting/auditing practices, procedures and methodologies; | |
• | the conduct of the business of Cambium and its subsidiaries between December 31, 2008 and June 20, 2009; | |
• | the absence of undisclosed liabilities; | |
• | the absence of a “material adverse effect” applicable to Cambium and its subsidiaries since December 31, 2008; | |
• | tax matters; | |
• | intellectual property; | |
• | title to or leasehold rights in real and personal property; | |
• | environmental matters; | |
• | material contracts and the performance of obligations thereunder; | |
• | credit agreements; | |
• | employee benefit plans; | |
• | labor and employment matters; | |
• | legal proceedings, compliance with laws, licenses and permits; | |
• | the absence of undisclosed broker’s fees; | |
• | Cambium’s and its subsidiaries’ insurance policies; | |
• | related party transactions involving Cambium and its subsidiaries; | |
• | the customers and vendors of Cambium and its subsidiaries; | |
• | accounts receivable and inventory; | |
• | prebilling and prepayment practices; | |
• | compliance with the Foreign Corrupt Practices Act and applicable export controls; | |
• | software used by Cambium and its subsidiaries; | |
• | actions that could affect the tax treatment of the transactions contemplated by the merger agreement; | |
• | accuracy and compliance as to form with applicable securities laws of this proxy statement/prospectus and the registration statement; | |
• | the inapplicability of certain anti-takeover statutes; | |
• | bank accounts; and | |
• | transaction expenses. |
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• | a disruption in financial, credit, banking or securities markets or any interest rate or exchange rate changes, generally, which does not disproportionately affect Cambium and its subsidiaries, taken as a whole, compared to other companies with indebtedness similar to Cambium and its subsidiaries; | |
• | any material downturn in general business or economic conditions to the extent it does not disproportionately affect Cambium and its subsidiaries, taken as a whole, compared to other participants in the industries in which Cambium and its subsidiaries operate; | |
• | any change attributable to the announcement or pendency of the transactions contemplated by the merger agreement, including any cancellations of or delays in customer agreements, any reduction in sales, any disruption in supplier, distributor, partner or similar relationships or any loss of employees, or resulting from or relating to compliance with the terms of, or the taking of any action required by, the merger agreement; | |
• | any change arising from or relating to any change after June 20, 2009 in generally accepted accounting principles as consistently applied by Cambium; | |
• | any change resulting from or relating to political or economic conditions, including acts of terrorism or war to the extent it does not disproportionately affect Cambium and its subsidiaries, taken as a whole, as compared with other participants in the industries in which Cambium and its subsidiaries operate; | |
• | any change arising from or relating to laws issued by any governmental authority after June 20, 2009 applicable to Cambium, Voyager and Holdings to the extent it does not disproportionately affect Cambium and its subsidiaries, taken as a whole, compared to other participants in the industries in which Cambium and its subsidiaries operate; | |
• | the failure, in and of itself, by Cambium to meet or exceed any internal projections, forecasts or earnings predictions, provided that this factor will not exclude any event or occurrence which caused such failure; and | |
• | the taking of any action, or failure to take action, to which Voyager has expressly consented or approved in writing. |
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• | Holdings’ formation, proper organization, good standing and qualification to do business and its governing documents; | |
• | Holdings’ capitalization, including, in particular, the number of shares of Holdings common stock outstanding; | |
• | Holdings’ corporate power and authority to enter into the merger agreement and other agreements referenced in the merger agreement and to complete the transactions contemplated by these agreements; | |
• | the required consents and approvals of governmental entities in connection with the transactions contemplated by the merger agreement; | |
• | the absence of violations of or conflicts with Holdings’ governing documents, applicable law or certain agreements as a result of entering into the merger agreement; and | |
• | accuracy and compliance as to form with applicable securities laws of this proxy statement/prospectus and the registration statement; |
• | each will conduct business in the ordinary course of business consistent with past practice in all material respects; | |
• | each will use reasonable best efforts to maintain and preserve its respective business organizations and to retain the services of its respective officers and key employees and maintain its respective relationships with customers, suppliers, lessees, licensees and other third parties; and | |
• | Holdings will not conduct business or incur any material liabilities. |
• | pay any dividends or distribution with respect to its outstanding shares of capital stock other than dividends and distributions paid to it by its respective subsidiaries; | |
• | split, combine or reclassify its capital stock or issue any other securities in respect of, in lieu of or in substitution for shares of its capital stock, other than any such transaction by a wholly owned subsidiary; | |
• | purchase, redeem or otherwise acquire any shares of its capital stock or other securities; |
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• | increase the compensation or other benefits payable or provided to its executive officersand/or directors; increase the compensation or other benefits payable or provided to its other employees, other than in the ordinary course of business consistent with past practice; enter into or amend in any material respect any employment or similar agreement with any of its employees, directors or officers, except for certain severance agreements entered into with employees (other than executive officers) in the ordinary course of business; or enter into or amend any collective bargaining agreement, plan, trust, fund, policy or arrangement for the benefit of any of its current or former directors, officers or employees; | |
• | make any loans to its employees, officers or directors; | |
• | amend its certificate of incorporation, by-laws or similar governing instruments; | |
• | issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of its capital stock, other than in connection with its outstanding stock options, stock appreciation rights and other contractual commitments; | |
• | sell, lease, license, transfer, exchange or swap, mortgage or otherwise encumber or otherwise dispose of any material portion of its properties or assets, including the capital stock of subsidiaries; | |
• | make unbudgeted capital expenditures; | |
• | acquire or make any investment in any business; | |
• | incur indebtedness for borrowed money, except (i) transactions with or among its direct or indirect wholly owned subsidiaries, (ii) indebtedness to replace, renew, extend, refinance or refund any existing indebtedness on materially no less favorable terms and in a principal amount no greater than the outstanding principal amount of the indebtedness being replaced, renewed, extended, refinanced or refunded and (iii) indebtedness incurred pursuant to agreements in effect on June 20, 2009; | |
• | enter into specified related party transactions; | |
• | enter into, or materially amend, modify or fail to renew, any material contract or waive, release or transfer any material rights or claims under any such contracts, except that Voyager, Cambium and their respective subsidiaries will not be prohibited from (i) entering into multi-year contracts reflecting discounts and gross profitability that are consistent in all material respects with other similarly sized single-year and multi-year transactions entered into by Voyager prior to June 20, 2009 or (ii) taking other actions in the ordinary course of business consistent with past practice; | |
• | settle, compromise, pay or satisfy any claim, action or proceeding, other than actions involving monetary damages of not more than $2,500,000 in the aggregate since June 20, 2009; | |
• | make any material change in any financial accounting method or make any material tax election, other than changes and elections required by generally accepted accounting principles or applicable law; | |
• | purchase, sell or grant a security interest in real property, or enter into any material lease, sublease or other occupancy agreement with respect to real property or materially modify or terminate any real property lease; | |
• | adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other corporate reorganization; | |
• | in the case of Cambium, modify or obtain a waiver of any of the material terms of Cambium Learning’s senior secured or senior unsecured credit agreements or take (or omit to take) any other action under such agreements, to the extent described in a schedule agreed upon by the parties or to the extent such modification, waiver or other action would be reasonably likely to result in a Cambium material adverse effect; | |
• | knowingly take any action that will likely result in its representations and warranties in the merger agreement becoming false or inaccurate in any material respect; or |
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• | agree to take any of the foregoing actions. |
• | initiate, solicit, encourage or facilitate any inquiry, proposal or offer that will lead to or would constitute, or that is reasonably likely to lead to, a Voyager alternative proposal (as described below); | |
• | engage in any negotiations concerning, or provide information relating to Voyager in connection with, or have any discussions with any third party relating to, or that is reasonably likely to lead to, a Voyager alternative proposal; | |
• | approve, endorse or recommend, or propose publicly to approve, endorse or recommend, any Voyager alternative proposal or a Voyager superior proposal (as described below); or | |
• | enter into a letter of intent, agreement in principle or agreement relating to any Voyager alternative proposal or a Voyager superior proposal. |
• | Voyager receives the Voyager alternative proposal on an unsolicited basis; | |
• | Voyager’s board of directors determines in good faith, after consultation with its financial advisors, that the Voyager alternative proposal constitutes or is reasonably expected to lead to a Voyager superior proposal; and | |
• | Voyager’s board of directors determines in good faith, after consultation with its outside legal counsel, that such action is required in order for the Voyager board to comply with its fiduciary obligations to Voyager stockholders under applicable law. |
• | Voyager receives the Voyager alternative proposal on an unsolicited basis; | |
• | the Voyager board determines in good faith, after consultation with its financial advisors, that the proposal constitutes a Voyager superior proposal; | |
• | the Voyager board determines in good faith, after consultation with its outside legal counsel, that the action is required in order for the board to comply with its fiduciary obligations to Voyager stockholders under applicable law; |
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• | Voyager gives Cambium and Holdings prior written notice that Voyager has received a Voyager superior proposal and the material terms of the Voyager superior proposal and the identity of the third party making the Voyager superior proposal; | |
• | during the four business day period following receipt by Cambium and Holdings of the notice, Voyager negotiates in good faith with Cambiumand/or Holdings with respect to any adjustments that Cambium and Holdings would be willing to make to the terms and conditions of the merger agreement; | |
• | following the end of the four business day period, Voyager’s board determines, in good faith, after consultation with its financial advisors, taking into account any adjustments proposed by Cambiumand/or Holdings to the terms of the merger agreement, that the proposal giving rise to the notice continues to constitute a Voyager superior proposal; and | |
• | if Voyager terminates the merger agreement in order to enter into a definitive agreement reflecting the Voyager superior proposal, Voyager pays Cambium the $7,500,000 termination fee payable in connection with the termination. |
• | notify Cambium within 24 hours of any inquiries or proposals that are reasonably expected to lead to a Voyager alternative proposal, any request for information relating thereto and any request for negotiations relating thereto; | |
• | keep Cambium and Holdings reasonably informed on a reasonably current basis of the status and details of any material negotiations regarding, or reasonably likely to lead to, any Voyager alternative proposal; and | |
• | provide Cambium and Holdings with copies of all written material communications and other material documents that reflect the terms of, or are reasonably likely to lead to, any Voyager alternative proposal. |
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• | the default or event of default may be cured under the credit agreements’ equity cure provisions; |
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• | the amount required to be invested or paid directly to the lenders to effect the equity cure, together with any other equity cures effected by Cambium between June 20, 2009 and the effective time, does not exceed $3,000,000; and | |
• | at the time of the equity cure, no default or event of default exists that (i) arises under a provision of the credit agreements other than the financial default provisions (we refer to such other defaults as “general defaults”) and (ii) gives rise to a failure of any condition to Voyager’s obligation to complete the closing (as opposed to a condition jointly applicable to Voyager and Cambium or a condition applicable to Cambium) unless the condition, if disclosed to Voyager, is waived by Voyager. |
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• | the transfer complies with Cambium Learning’s credit agreements; | |
• | all Voyager transaction fees are paid in full; | |
• | Holdings receives a solvency opinion in form and substance reasonably satisfactory to certain members of the Holdings board of directors; and | |
• | Holdings provides an unconditional guaranty of payment with respect to the remaining Voyager closing liabilities. | |
• | Pursuant to the terms of the amendments to the credit agreements, this spinoff has been approved by the lenders and is required to be completed on or before February 19, 2010. |
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• | providing and continuing indemnification, insurance and comparable benefits to the present and former officers and directors of Voyager as described under “ THE MERGERS — Interests of Voyager’s Directors and Officers in the Mergers” on page 101; |
• | the filing with the SEC of this proxy statement/prospectus and the registration statement, and cooperation in preparing this proxy statement/prospectus and the registration statement and in responding to any comments received from the SEC on those documents; | |
• | giving access to each other’s employees, facilities and books and records; |
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• | cooperating with respect to press releases and other public statements; | |
• | taking such actions as are reasonably necessary to eliminate or minimize the effect of any anti-takeover statutes and regulations that may become applicable to the transactions contemplated by the merger agreement; | |
• | adopting the Holdings equity incentive plan described elsewhere in this proxy statement/prospectus and registering with the SEC the Holdings common stock issuable pursuant to that plan; | |
• | promptly notifying each other of certain enumerated matters; | |
• | contesting any suits brought by any governmental entity or private party challenging any of the transactions contemplated by the merger agreement as being in violation of any law; | |
• | using reasonable efforts to list on the NASDAQ Global Market, or on such other national securities exchange as Holdings may determine, the shares of Holdings common stock issuable pursuant to the merger agreement, although the failure to affect this listing does not provide a basis for terminating the merger agreement; and | |
• | using reasonable efforts to cause the Voyager merger and the Cambium merger to be treated for tax purposes in the manner described in this proxy statement/prospectus under the caption “THE MERGERS — Material U.S. Federal Income Tax Consequences of the Transaction.” |
• | Stockholder approval. Holders of a majority of the outstanding shares of Voyager common stock must approve the merger agreement. | |
• | No laws or orders. No law will have been adopted, and no order, injunction or other judgment issued by any governmental authority will be in effect which has the effect of making any of the transactions which we describe elsewhere in this proxy statement/prospectus as the “Holdings III Merger Transactions,” the Voyager merger or the Cambium merger illegal or otherwise enjoining or prohibiting the completion of any of the Holdings III Merger Transactions, the Voyager merger or the Cambium merger. | |
• | Regulatory Approvals. The waiting periods under the HSR Act and under any similar laws have expired or been earlier terminated. The FTC announced on July 20, 2009 that the HSR waiting period was terminated. |
• | Registration Statement. The registration statement has been declared effective by the SEC (as it was on November 13, 2009), the SEC shall not have issued any stop order relating to the registration statement, and no legal proceedings have been threatened or commenced to suspend the effectiveness of the registration statement. |
• | Representations and Warranties. The representations and warranties made by Holdings and Cambium must be true and correct in all material respects (or in all respects if they are qualified by materiality) as of the closing or as of the date made if expressly made as of a specified date, except that: |
• | this condition will be satisfied if the failure of Holdings’ and Cambium’s representations and warranties in the aggregate to be true and correct in all (or all material, as the case may be) respects would not have a material adverse effect; and |
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• | any event or circumstance under Cambium’s Learning senior secured and senior unsecured credit agreements will not be considered for purposes of determining whether this condition has been satisfied. |
• | Compliance with Covenants. Cambium and Holdings have performed, in all material respects, all covenants required to be performed by them under the merger agreement; provided, however, that no event or circumstance under the credit agreements will cause a failure of this condition. | |
• | No Material Adverse Effect. No Cambium material adverse effect has occurred. | |
• | Credit Agreements Default. No “default” or “event of default” is ongoing under Cambium Learning’s credit agreements. | |
• | Certificate. Cambium and Holdings have executed a certificate confirming that the conditions set forth above have been satisfied. | |
• | Tax Opinion. Voyager has received an opinion from its tax counsel that the mergers, taken together, will be treated as a transaction described in Section 351 of the Internal Revenue Code. See “THE MERGERS — Material U.S. Federal Income Tax Consequences of the Transaction.” | |
• | Merger Consideration. Holdings or Cambium has deposited with the exchange agent all portions of the merger consideration which they are obligated to deposit. | |
• | Holdings III Merger Transactions. The Holdings III Merger Transactions have been completed. | |
• | Documentation. Holdings, Cambium and the Veronis Suhler Stevenson funds which control Cambium have executed the transaction documents that they are required to execute. |
• | Representations and Warranties. The representations and warranties made by Voyager must be true and correct in all material respects (or in all respects if they are qualified by materiality) as of the closing or as of the date made if expressly made as of a specified date, except that this condition will be satisfied if the failure of Voyager’s representations and warranties in the aggregate to be true and correct in all (or all material, as the case may be) respects would not have a Voyager material adverse effect. | |
• | Compliance with Covenants. Voyager has performed, in all material respects, all covenants required to be performed by it under the merger agreement. | |
• | No Material Adverse Effect. No Voyager material adverse effect has occurred. | |
• | Certificate. Voyager has executed a certificate confirming that the conditions set forth above have been satisfied. | |
• | Tax Opinion. Cambium has received an opinion from its tax counsel that the mergers, taken together, will be treated as a transaction described in Section 351 of the Internal Revenue Code. See “THE MERGERS — Material U.S. Federal Income Tax Consequences of the Transaction.” | |
• | LAZEL. The LAZEL Spinoff has been completed in accordance with the applicable documentation. | |
• | Cash. There is at least $12,000,000 in Available Voyager Cash for Cash Election. | |
• | Dissenters. The number of Dissenters’ Shares does not exceed 7.5% of the total number of shares of Voyager common stock outstanding. | |
• | Control. After taking into account the full effect of the Voyager merger and the Cambium merger, Cambium Learning’s original investors own at least 51% of the shares of Holdings common stock outstanding (including the shares reserved for issuance under Holdings’ new equity incentive plan). | |
• | Documentation. Voyager has executed the transaction documents that it is required to execute. |
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• | all cash and cash equivalents held by Voyager and its subsidiaries as of the business day immediately before the closing date (counting all agreed upon Voyager Tax Refunds received before the closing date and all cash then held in rabbi trusts for the payment of certain retirement and other benefits); plus | |
• | an amount representing the aggregate amount of fees, costs and expenses of Voyager’s consultants, financial advisors, attorneys, accountants and other similar agents and representatives, for services performed since November 1, 2008 in connection with the transactions contemplated by the merger agreement, in each case to the extent paid by Voyager and its subsidiaries prior to the closing (we refer to this amount as the “Voyager Expense Reimbursement Amount” in this proxy statement/prospectus); |
• | the agreed upon retirement, severance, change in control and other benefit payments Voyager is obligated to fund in connection with the closing; plus | |
• | any amount in excess of $650,000 used to purchase a tail insurance policy for Voyager’s directors and officers; plus | |
• | the amount of all agreed upon Voyager Tax Refunds received before the closing date; plus |
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• | $1,000,000; plus | |
• | 30% of any amount paid to Voyager in excess of $4.5 million in the aggregate by any school authorities under any multi-year contracts. |
Termination Event | Associated Fee | |
Termination by mutual written consent of Voyager and Cambium. | No fee. | |
Termination by either Voyager or Cambiumif the effective time has not occurred on or before December 31, 2009, provided that the party seeking to terminate has not breached in any material respect its obligations under the merger agreement in any manner that has been the cause of, or resulted in, the failure of the effective time to occur on or before December 31, 2009. | No fee. | |
Termination by either Voyager or Cambiumif a court or other governmental entity has imposed a restraint permanently enjoining or otherwise prohibiting the Voyager merger, the Cambium merger or the Holdings III Merger Transactions and such order or other action is final and non-appealable, so long as the party seeking to terminate the merger agreement complied with its obligations under the merger agreement to prevent, oppose and remove such restraint (we refer to this termination as a “Restraint Termination”). | No fee. | |
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Termination Event | Associated Fee | |
Termination by either Voyager or Cambiumif Voyager stockholders do not approve the merger agreement at the Voyager special meeting of stockholders (we refer to this termination as a “Voyager Stockholder Non-Approval Termination”). | Voyager is obligated to pay Cambium’s expenses incurred in connection with the merger agreement and related transactions, up to a maximum of $3,000,000, in the event that (i) the merger agreement is terminated by Voyager or Cambium as a result of such non-approval or (ii) Voyager stockholders fail to approve the merger agreement at the special meeting and Voyager terminates the merger agreement for another reason, but such termination does not involve either (x) a default under Cambium Learning’s credit agreements in circumstances in which no termination fee is payable to Voyager or (y) a breach by Cambium of its covenants under the merger agreement. | |
If the conditions for such $3,000,000 payment exist, a Voyager alternative proposal or a Voyager superior proposal is publicly announced or otherwise communicated to Voyager’s board and within 12 months after the termination of the merger agreement, Voyager enters into, or completes, a written agreement with a third party relating to a Voyager alternative proposal or a Voyager superior proposal, then Voyager is obligated to pay Cambium a fee of $7,500,000 (less any expense reimbursement amount previously paid). | ||
Termination by Voyagerif there is a breach by Cambium or Holdings of any representations or warranties in the merger agreement such that the closing conditions would not be satisfied and such breach is incapable of being cured, or has not been cured, in all material respects by December 31, 2009, provided that Voyager is not then in material breach of any of its obligations, representations or warranties in the merger agreement. | Cambium is obligated to reimburse Voyager for any damages actually suffered by Voyager up to $4,500,000 (less any other termination fees and expenses which Cambium is otherwise obligated to pay), provided that: • the applicable misrepresentation was a material and willful breach; and • the misrepresentation did not arise as a result of acts or omissions occurring after June 20, 2009. | |
However, the dollar amount limitation described above with respect to any such misrepresentation would not relieve Cambium of liability if Cambium had acted fraudulently in making the misrepresentation. | ||
Termination by Voyager if there is a breach by Cambium or Holdings of any covenants or agreements in the merger agreement such that the closing conditions would not be satisfied and such breach is incapable of being cured, or has not been cured, in all material respects by December 31, 2009, provided that Voyager is not then in material breach of any of its obligations, representations or warranties in the merger agreement. | Cambium is obligated to pay Voyager a fee of $4,500,000 (less any other termination fees and expenses which Cambium is otherwise obligated to pay), provided that the applicable breach does not relate to covenants made by Cambium with respect to Cambium’s credit agreements. | |
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Termination Event | Associated Fee | |
Termination by Voyager if Voyager gives notice of termination, after the SEC declares the registration statement effective, in order for Voyager to enter into a transaction that constitutes a Voyager superior proposal, provided that such proposal was first received by Voyager after the SEC declares the registration statement effective. | Voyager is obligated to pay Cambium a fee of $7,500,000 (less any termination fees previously paid by Voyager in connection with a failure of Voyager stockholders to approve the merger agreement at the Voyager special meeting). | |
Termination by Voyager if the closing does not occur (including, for example, because the $25 million has not been funded by the Cambium stockholder or if Voyager does not have sufficient excess cash to fund its transaction expenses and Holdings fails to make up the shortfall) within 11 business days after all of the conditions to Cambium’s obligations to close, including the conditions that are jointly applicable to both Cambium and Voyager but excluding conditions which, by their nature, cannot be satisfied until the closing, have been satisfied or waived, provided that Voyager may not rely upon this basis for termination until the earlier of December 31, 2009 and the date on which Voyager notifies Cambium that all of the conditions to Voyager’s obligations to close, including the conditions that are jointly applicable to both Cambium and Voyager but excluding certain specified conditions within Cambium’s control, have been satisfied or waived. | Cambium is obligated to pay Voyager a fee of $4,500,000. | |
Termination by Voyager if Cambium is obligated to, and fails to, effect the equity cure of the total leverage covenant under Cambium’s credit agreement. | Cambium is obligated to pay Voyager a fee of $9,000,000. | |
Termination by Voyager if, on the date of the closing, the Holdings III Merger Transactions have not been completed in accordance with the terms of the merger agreement. | Cambium is obligated to pay Voyager a fee of $4,500,000, except that such fee will not be payable if the merger agreement may then be terminated pursuant to a Restraint Termination or pursuant to a Cambium Dissenting Share Termination. | |
Termination by Cambium if there is a breach by Voyager of any representations or warranties in the merger agreement such that the closing conditions would not be satisfied and such breach is incapable of being cured, or has not been cured, in all material respects by December 31, 2009, provided that Cambium is not then in material breach of any of its obligations, representations or warranties in the merger agreement. | Voyager is obligated to reimburse Cambium for any damages actually suffered by Cambium up to $4,500,000 (less any other termination fees and expenses which Voyager is otherwise obligated to pay), provided that: • the applicable misrepresentation was a material and willful breach; and • the misrepresentation did not arise as a result of acts or omissions occurring after June 20, 2009. | |
However, the dollar amount limitation described above with respect to any such misrepresentation would not relieve Voyager of liability if Voyager had acted fraudulently in making the misrepresentation. | ||
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Termination Event | Associated Fee | |
Termination by Cambiumif there is a breach by Voyager of any covenants or agreements in the merger agreement such that the closing conditions would not be satisfied and such breach is incapable of being cured, or has not been cured, in all material respects by December 31, 2009, provided that Cambium is not then in material breach of any of its obligations, representations or warranties in the merger agreement. | Voyager is obligated to pay Cambium a fee of $4,500,000 (less any other termination fees and expenses which Voyager is otherwise obligated to pay). | |
Termination by Cambiumif any of the following events occur: • the Voyager board or any committee of the Voyager board withdraws or modifies, in a manner adverse to Cambium, the recommendation to Voyager stockholders to approve the merger agreement, or approves or recommends any Voyager alternative proposal or Voyager superior proposal; | Voyager is obligated to pay Cambium a fee of $7,500,000 (less any termination fees previously paid by Voyager in connection with the failure of Voyager stockholders to approve the merger agreement at the special meeting), provided that Cambium terminates the merger agreement within seven days after receipt of notice from Voyager that an event giving rise to such a termination has occurred. | |
• Voyager does not include such board recommendation in this proxy statement/prospectus; | ||
• a tender or exchange offer relating to Voyager common stock is made and Voyager fails to send to its stockholders, within ten business days after commencement of the offer, a statement recommending the rejection of such offer; | ||
• a Voyager alternative proposal or Voyager superior proposal is publicly announced, and Voyager fails to issue, within ten business days after the proposal is announced, a press release that reaffirms the Voyager board’s recommendation that the Voyager stockholders approve the merger agreement; | ||
• the Voyager board or any committee of the Voyager board fails to reject a Voyager alternative proposal within ten business days after receiving such a proposal or approves or publicly recommends a Voyager alternative proposal; | ||
• Voyager enters into a letter of intent or agreement accepting any Voyager superior proposal; or | ||
• Voyager materially breaches specified obligations set forth in the merger agreement relating to competing transactions, the filing of this proxy statement/prospectus, the Voyager voting agreements described below and the conduct of the Voyager special meeting. | ||
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Termination Event | Associated Fee | |
Termination by Cambiumif the number of Dissenting Shares equals or exceeds 7.5% of the shares of Voyager common stock outstanding at the effective time; we refer to this as a “Cambium Dissenting Share Termination.” | No fee. | |
Termination by Cambiumif Cambium elects to terminate the merger agreement at any time for any other reason. | Cambium is obligated to pay Voyager a fee of $4,500,000. | |
• | to cover its reasonable costs and expenses, | |
• | to purchase insurance to provide indemnification protection to the Stockholders’ Representative; and | |
• | to provide reasonable compensation for the performance of its services. |
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• | to enforce any obligation of Holdings, Cambium or their subsidiaries that arise subsequent to the closing under the merger agreement and under other related agreements, including the limited guarantee described below, the contingent value rights agreement and the escrow agreement; | |
• | to negotiate and compromise disputes that may arise, and to decide not to pursue any remedies available, under the merger agreement and other related agreements and to execute any settlement agreement, release or other document with respect to any such dispute or remedy; | |
• | to engage attorneys, accountants and agents at the expense of and on behalf of Voyager stockholders; | |
• | to give and receive notice or other communication on behalf of Voyager stockholders; and | |
• | to take any and all other actions incidental to the duties of the Stockholders’ Representative under the merger agreement. |
• | the Stockholders’ Representative is authorized to act on behalf of the stockholder; | |
• | Holdings and its subsidiaries, as well as all funds or entities owned, controlled or managed by VSS, are entitled to rely on any action of the Stockholder Representative taken under the merger agreement; | |
• | the Stockholder Representative’s authority will continue at all times when the stockholder has rights under the merger agreement and related agreements; and | |
• | a majority in interest of the holders of the CVRs have the right to remove, replace or appoint a successor to the Stockholders’ Representative. |
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• | the effective time of the mergers; | |
• | the termination of the merger agreement in accordance with its terms under circumstances in which Cambium is not obligated to pay any termination fees; and | |
• | in the case of a termination of the merger agreement under circumstances in which Cambium is obligated to pay any termination fees, upon payment by Cambium or the guarantors of the termination fees, as well as associated expenses and interest charges, if applicable, in accordance with the terms of the merger agreement and the limited guarantee. |
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• | to vote the stockholder’s shares of Voyager common stock in favor of adoption of the merger agreement and approval of the Voyager merger and the other actions contemplated by the merger agreement; | |
• | to vote against any Voyager alternative proposal or Voyager superior proposal; and | |
• | to vote against any action, agreement or proposal that could reasonably be expected to result in any of the conditions to the completion of the Voyager merger under the merger agreement not being fulfilled or which could reasonably be expected to otherwise impede, interfere with, delay, postpone or materially adversely effect the Voyager merger or the other transactions contemplated by the merger agreement. |
• | sell, pledge, assign, encumber, transfer or dispose of, or grant an option, contract or other arrangement or understanding with respect to, the shares of Voyager common stock held by such stockholder, or any interest in the shares of Voyager common stock held by such stockholder, to any person other than Holdings; | |
• | enter into any hedging or other transaction that is designed to or that could reasonably be expected to lead to or result in a sale or disposition of the shares of Voyager common stock held by such stockholder; | |
• | commit, agree or offer to do any of the things listed above; | |
• | solicit alternative acquisition proposals; or | |
• | assert any rights of appraisal with respect to the Voyager merger and the transactions contemplated by the merger agreement. |
• | the effective time; | |
• | the termination of the merger agreement in accordance with its terms; or | |
• | the mutual written agreement of the parties to the applicable Voyager voting and support agreement. |
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• | with respect to the shares of Cambium common stock held by the Cambium stockholder: |
• | to vote its shares of Cambium common stock in favor of adoption of the merger agreement and approval of the Cambium merger and the other actions contemplated by the merger agreement; and | |
• | to vote against any action, agreement or proposal that could reasonably be expected to result in any of the conditions to the completion of the Cambium merger under the merger agreement not being fulfilled or which could reasonably be expected to otherwise impede, interfere with, delay, postpone or materially adversely effect the Cambium merger or the other transactions contemplated by the merger agreement; and |
• | with respect to its membership interests in VSS-Cambium Holdings III Acquisition, LLC, another of its wholly owned subsidiaries, to vote all of its membership interests in VSS-Cambium Holdings III Acquisition, LLC in favor of the Holdings III Merger Transactions and against any other action, agreement or proposal that could reasonably be expected to impede, interfere with, delay, postpone or materially adversely affect the Holdings III Merger Transactions. |
• | sell, pledge, assign, encumber, transfer or dispose of, or grant an option, contract or other arrangement or understanding with respect to, the shares of Cambium common stock held by it, or any interest in the shares of Cambium common stock held by it, to any person other than Holdings; | |
• | enter into any hedging or other transaction that is designed to or that could reasonably be expected to lead to or result in a sale or disposition of the shares of Cambium common stock held by it; | |
• | commit, agree or offer to do any of the things listed above; or | |
• | exercise or assert any rights of appraisal from the Cambium merger and the transactions contemplated by the merger agreement. |
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• | the effective time; | |
• | the termination of the merger agreement in accordance with its terms; or | |
• | the termination of the Cambium voting agreement upon the mutual written agreement of the parties to the Cambium voting agreement. |
• | specified Voyager tax refunds received after the effective time, plus | |
• | the lesser of $4,000,000or the amount of specified post-signing tax refunds of Voyager received after the date of the merger agreement and on or prior to the date of the closing, plus | |
• | any portion of the 280G Escrow Account which is not paid to its beneficiary, plus | |
• | other amounts specified in the escrow agreement, |
• | a transfer of CVRs by will or intestacy upon the death of the holder; | |
• | a transfer by instrument to aninter vivostrust (established during one’s lifetime) or testamentary trust (established upon one’s death) in which CVRs are to be passed to beneficiaries upon the death of the trustee; | |
• | a transfer made under a valid court order, such as in connection with a divorce, bankruptcy or liquidation; | |
• | if the holder is a partnership or limited liability company, a distribution by the transferring partnership or limited liability company to its partners or members, as applicable; or | |
• | a transfer made by operation of law (including a consolidation or merger) or in connection with the dissolution, liquidation or termination of any corporation, limited liability company, partnership or other entity. |
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• | the CVR escrow fund, which includes the Voyager tax refund holdback amount and all tax refunds received by Voyager following completion of the closing, which ultimately (minus specified expenses and liabilities) will be delivered to the rights agent for distribution to the CVR holders; | |
• | the excess employee payment fund, which includes specified excess employee payments; and |
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• | the 280G escrow fund, which includes funds set aside to satisfy any potential tax“gross-up” obligations incurred by Mr. Surratt in connection with the mergers. |
• | agreed contingencies, which are described in greater detail under “THE MERGER AGREEMENT-Agreed Contingencies” on page 135 of this proxy statement/prospectus; |
• | any documented costs of Holdings incurred by Holdings in connection with collecting tax refunds on behalf of Voyager; | |
• | any working capital adjustment to which Holdings may be entitled under the terms of the merger agreement; and | |
• | any reasonable, documented out-of-pocket costs or expenses of, and reasonable compensation for, the Stockholders’ Representative or any advisors that it may engage. |
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• | the written consent of the Stockholders’ Representative, which consent may be granted or withheld in its sole and absolute discretion; |
• | the full distribution by the escrow agent of the CVR escrow fund in accordance with the terms of the escrow agreement described under “— Escrow Agreement” on page 151; |
• | the second anniversary of the effective time with respect to the Voyager Class II designees and the third anniversary of the effective time with respect to the Voyager Class III designees; or | |
• | the date on which Cambium’s stockholder and funds managed or controlled by VSS cease to collectively beneficially own in the aggregate at least 10% of the issued and outstanding shares of Holdings common stock. |
• | none of the funds managed or controlled by VSS nor the Cambium stockholder will vote or otherwise take any action to amend, modify or repeal Holdings’ certificate of incorporation or bylaws to eliminate the Class II or Class III director classes, to increase or decrease the size of the board of directors or in any other manner that would result in a breach of the stockholders agreement; and | |
• | Cambium’s stockholder and funds managed or controlled by VSS will vote or act by written consent to maintain a classified or staggered board of directors of Holdings, with the director classes and other terms as set forth in Holdings’ certificate of incorporation and bylaws. |
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• | in connection with a stock split, stock dividend, capital reorganization, recapitalization, or reclassification of Holdings common stock or other capital stock, distributable on a pro rata basis to all holders of the same class of common stock or other capital stock, as applicable; | |
• | to employees, officers, directors or consultants of Holdings under an equity incentive plan, stock option plan, employee stock purchase plan, restricted stock plan or other employee benefit plans or programs in effect from time to time; | |
• | in connection with the conversion of any preferred stock or the conversion or exercise of any options, warrants or other rights to purchase any securities of Holdings; | |
• | in consideration for the acquisition (by merger, consolidation, reorganization or otherwise) by Holdings or any subsidiary of Holdings of the assets, business or equity interests of another person approved by a majority of the board of directors; or | |
• | to any of the lenders or other financing sources of Holdings or its subsidiaries in connection with the incurrence, renewal or maintenance of any indebtedness. |
• | 7,500,000 shares of common stock (subject to adjustment in the event of any dividend, stock split, combination or similar recapitalization event); or | |
• | the number of shares of common stock that Cambium’s stockholder and funds managed or controlled by VSS may purchase from time to time during the24-month subscription period for an aggregate purchase price of $20,000,000 (based upon the per share purchase price described below). |
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Voyager Common Stock | ||||||||
High | Low | |||||||
Year Ending December 31, 2009: | ||||||||
Fourth Quarter (through November 12, 2009) | $ | 4.85 | $ | 4.26 | ||||
Third Quarter | $ | 4.80 | $ | 3.40 | ||||
Second Quarter | $ | 3.80 | $ | 1.10 | ||||
First Quarter | $ | 1.70 | $ | 0.90 | ||||
Year Ended December 31, 2008: | ||||||||
Fourth Quarter | $ | 3.90 | $ | 1.05 | ||||
Third Quarter | $ | 5.20 | $ | 3.93 | ||||
Second Quarter | $ | 6.55 | $ | 4.95 | ||||
First Quarter | $ | 7.15 | $ | 5.95 | ||||
Year Ended December 31, 2007: | ||||||||
Fourth Quarter | $ | 8.20 | $ | 4.75 | ||||
Third Quarter | $ | 9.85 | $ | 6.94 | ||||
Second Quarter | $ | 10.36 | $ | 8.32 | ||||
First Quarter | $ | 12.14 | $ | 8.23 |
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• | at the election of the stockholder, either: |
• | one share of Holdings common stock, or | |
• | $6.50 in cash, subject to proration rules referred to below; plus, regardless of the election made, |
• | an amount in cash equal to the amount of specified tax refunds received by Voyager prior to the closing of the mergers (reduced by the amount of the Voyager tax refunds contractually required to be placed in escrow at closing), divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers; plus | |
• | a CVR, which represents the right to receive cash in an amount equal to the aggregate amount of specified tax refunds received after the closing of the mergers and various other amounts deposited in escrow on or after the closing date, as reduced by any payments to be made under the escrow agreement with respect to agreed contingencies, a working capital adjustment and Stockholders’ Representative expenses, divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers. |
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• | changes in Voyager’s net assets between the pro forma balance sheet date of September 30, 2009 and the closing of the mergers which could impact the preliminary estimated purchase price or the preliminary estimated fair values as of the effective date of the mergers; |
• | the value of Holdings as of the effective date of the mergers; | |
• | the timing of completion of the mergers; | |
• | Voyager stockholder elections to receive cash versus common stock of Holdings and to exercise appraisal rights; and | |
• | other changes in net assets that may occur prior to completion of the mergers, which could cause material differences in the information presented. |
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(f/k/a Cambium-Voyager Holdings, Inc.)
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2009
Pro Forma | Pro Forma | |||||||||||||||||||
Cambium | Voyager | Adjustments | Combined | |||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 9,534 | $ | 85,325 | $ | (18,760 | ) | A | $ | 18,076 | ||||||||||
(83,023 | ) | B | ||||||||||||||||||
25,000 | C | |||||||||||||||||||
Accounts receivable, net | 21,640 | 14,789 | 36,429 | |||||||||||||||||
Income tax receivable | — | 4,684 | 4,684 | |||||||||||||||||
Inventory | 9,800 | 12,568 | 327 | D | 22,695 | |||||||||||||||
Other current assets | 5,719 | 7,451 | (2,846 | ) | E | 14,112 | ||||||||||||||
3,788 | A | |||||||||||||||||||
Total current assets | 46,693 | 124,817 | (75,514 | ) | 95,996 | |||||||||||||||
Property, plant and equipment, net | 17,849 | 7,210 | (5,395 | ) | F | 19,664 | ||||||||||||||
Goodwill | 107,268 | 72,542 | (7,796 | ) | H | 172,014 | ||||||||||||||
Intangible assets, net | 85,555 | 43,934 | (6,983 | ) | G | 127,901 | ||||||||||||||
5,395 | F | |||||||||||||||||||
Property held for sale | 158 | — | 158 | |||||||||||||||||
Other assets | 149 | 1,536 | 14,057 | A | 15,742 | |||||||||||||||
Total assets | $ | 257,672 | $ | 250,039 | $ | (76,236 | ) | $ | 431,475 | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current maturities of long-term debt and capital lease obligations | $ | 16,280 | $ | 152 | $ | 16,432 | ||||||||||||||
Accounts payable and accrued expenses | 10,023 | 16,472 | (915 | ) | A | 36,545 | ||||||||||||||
10,400 | I | |||||||||||||||||||
565 | J | |||||||||||||||||||
Deferred revenue, current portion | 1,189 | 32,216 | (13,860 | ) | K | 19,545 | ||||||||||||||
Total current liabilities | 27,492 | 48,840 | (3,810 | ) | 72,522 | |||||||||||||||
Long-term liabilities: | ||||||||||||||||||||
Long-term debt and capital lease obligations, less current maturities | 150,426 | 63 | 150,489 | |||||||||||||||||
Other liabilities | 24,900 | 21,029 | 5,462 | B | 46,309 | |||||||||||||||
(2,335 | ) | K | ||||||||||||||||||
(5,175 | ) | L | ||||||||||||||||||
2,428 | N | |||||||||||||||||||
Total long-term liabilities | 175,326 | 21,092 | 380 | 196,798 | ||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common stock | — | 30 | 14 | M | 44 | |||||||||||||||
Capital surplus | 154,667 | 357,823 | (357,867 | ) | M | 275,317 | ||||||||||||||
95,694 | B | |||||||||||||||||||
25,000 | C | |||||||||||||||||||
Accumulated deficit | (99,813 | ) | (161,657 | ) | 161,657 | M | (115,428 | ) | ||||||||||||
(10,400 | ) | I | ||||||||||||||||||
(565 | ) | J | ||||||||||||||||||
(4,650 | ) | N | ||||||||||||||||||
Treasury stock, at cost | — | (16,836 | ) | 16,836 | M | — | ||||||||||||||
Accumulated other comprehensive income (loss) | — | 747 | (747 | ) | M | — | ||||||||||||||
Subscription rights | — | — | 2,222 | N | 2,222 | |||||||||||||||
Total shareholders’ equity | 54,854 | 180,107 | (72,806 | ) | 162,155 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 257,672 | $ | 250,039 | $ | (76,236 | ) | $ | 431,475 | |||||||||||
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(f/k/a Cambium-Voyager Holdings, Inc.)
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2008
Pro Forma | Pro Forma | |||||||||||||||||||
Cambium | Voyager | Adjustments | Combined | |||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Net sales | $ | 99,731 | $ | 98,531 | $ | (9,452 | ) | O | $ | 188,810 | ||||||||||
Cost and expenses: | ||||||||||||||||||||
Cost of sales, excluding depreciation and amortization | (34,074 | ) | (39,062 | ) | 1,398 | P | (73,481 | ) | ||||||||||||
(1,743 | ) | Q | ||||||||||||||||||
Selling and administrative expense | (43,155 | ) | (66,573 | ) | 26 | V | (113,463 | ) | ||||||||||||
51 | X | |||||||||||||||||||
(1,122 | ) | Y | ||||||||||||||||||
(2,690 | ) | J | ||||||||||||||||||
Depreciation and amortization | (27,419 | ) | (21,358 | ) | 11,138 | R | (37,639 | ) | ||||||||||||
Goodwill impairment | (75,966 | ) | (43,141 | ) | (119,107 | ) | ||||||||||||||
Embezzlement and related expenses | (7,254 | ) | — | (7,254 | ) | |||||||||||||||
Lease termination costs | — | (11,673 | ) | (11,673 | ) | |||||||||||||||
Loss from operations | (88,137 | ) | (83,276 | ) | (2,394 | ) | (173,807 | ) | ||||||||||||
Interest and other income (expenses), net | (19,415 | ) | 612 | (754 | ) | S | (19,557 | ) | ||||||||||||
Gain from settlement with previous stockholders | 30,202 | — | 30,202 | |||||||||||||||||
Loss on extinguishment of debt | (5,632 | ) | — | (5,632 | ) | |||||||||||||||
Loss from operations before income taxes | (82,982 | ) | (82,664 | ) | (3,148 | ) | (168,794 | ) | ||||||||||||
Income tax benefit | 13,422 | 1,160 | (184 | ) | T | 14,398 | ||||||||||||||
Net loss | $ | (69,560 | ) | $ | (81,504 | ) | $ | (3,332 | ) | $ | (154,396 | ) | ||||||||
Net loss per common share: | ||||||||||||||||||||
Basic net loss per common share | $ | (2.73 | ) | $ | (3.53 | ) | ||||||||||||||
Diluted net loss per common share | $ | (2.73 | ) | $ | (3.53 | ) | ||||||||||||||
Average number of common shares and equivalents outstanding: | ||||||||||||||||||||
Basic | 29,871 | 13,919 | U | 43,790 | ||||||||||||||||
Diluted | 29,871 | 13,919 | U | 43,790 |
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(f/k/a Cambium-Voyager Holdings, Inc.)
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2009
Pro Forma | Pro Forma | |||||||||||||||||||
Cambium | Voyager | Adjustments | Combined | |||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Net sales | $ | 77,741 | $ | 79,584 | $ | (313 | ) | O | $ | 157,012 | ||||||||||
Cost and expenses: | ||||||||||||||||||||
Cost of sales, excluding depreciation and amortization | (25,086 | ) | (28,267 | ) | 34 | P | (54,738 | ) | ||||||||||||
(1,419 | ) | Q | ||||||||||||||||||
Selling and administrative expense | (30,595 | ) | (42,461 | ) | 8,573 | V | (66,459 | ) | ||||||||||||
(1,089 | ) | W | ||||||||||||||||||
(46 | ) | X | ||||||||||||||||||
(841 | ) | Y | ||||||||||||||||||
Depreciation and amortization | (19,611 | ) | (14,605 | ) | 6,266 | R | (27,950 | ) | ||||||||||||
Goodwill impairment | (9,105 | ) | (27,175 | ) | (36,280 | ) | ||||||||||||||
Embezzlement and related expenses | 195 | — | 195 | |||||||||||||||||
Loss from operations | (6,461 | ) | (32,924 | ) | 11,165 | (28,220 | ) | |||||||||||||
Interest and other income (expenses), net | (14,891 | ) | 413 | (64 | ) | S | (14,542 | ) | ||||||||||||
Loss from operations before income taxes | (21,352 | ) | (32,511 | ) | 11,101 | (42,762 | ) | |||||||||||||
Income tax benefit | 5,043 | 81 | (5,124 | ) | T | — | ||||||||||||||
Net loss | $ | (16,309 | ) | $ | (32,430 | ) | $ | 5,977 | $ | (42,762 | ) | |||||||||
Net loss per common share: | ||||||||||||||||||||
Basic net loss per common share | $ | (1.09 | ) | $ | (0.98 | ) | ||||||||||||||
Diluted net loss per common share | $ | (1.09 | ) | $ | (0.98 | ) | ||||||||||||||
Average number of common shares and equivalents outstanding: | ||||||||||||||||||||
Basic | 29,874 | 13,916 | U | 43,790 | ||||||||||||||||
Diluted | 29,874 | 13,916 | U | 43,790 |
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Note 1 — | Basis of Presentation |
Note 2 — | Preliminary Estimated Purchase Price |
• | at the election of the stockholder, either: |
• | one share of Holdings common stock, or | |
• | $6.50 in cash, subject to cash available to satisfy cash elections determined by an agreed formula that is primarily dependent on the cash generated by Voyager prior to closing, but the amount of cash available for cash elections is limited to a maximum of $67.5 million in the aggregate and subject to proration rules described elsewhere in this proxy statement/prospectus; |
• | plus, regardless of the election made, |
• | an amount in cash equal to the amount of specified tax refunds received by Voyager prior to the closing of the mergers (reduced by the amount of the Voyager tax refunds contractually required to be placed in escrow at closing), divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers, which we estimate to be 29,874,145 shares; plus | |
• | a CVR to receive cash in an amount equal to the aggregate amount of specified tax refunds received after the closing of the mergers and various other amounts deposited in escrow on or after the closing date, reduced by any payments to be made under an escrow agreement to be entered into in connection with the mergers, with respect to agreed contingencies, a potential working capital adjustment and Stockholders’ Representative expenses, divided by the total number of shares of Voyager common stock outstanding immediately prior to the effective time of the mergers. |
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Total | Shares | Shares | ||||||||
Cash Paid for | Estimated | Eligible to | Receiving a | |||||||
Cash Election | Consideration | Receive Cash | Holdings Share | |||||||
(In thousands) | ||||||||||
$ | 67,500 | $ | 184,179 | 10,384 | 19,490 | |||||
65,000 | 183,568 | 10,000 | 19,874 | |||||||
62,500 | 182,956 | 9,615 | 20,259 |
(In thousands) | ||||
Holdings shares to be issued to existing Cambium stockholder | 20,454 | |||
Additional shares to be issued for $25 million capital contribution to be made immediately prior to closing by the Cambium stockholder | 3,846 | |||
Estimated Holdings shares to be issued to existing Voyager stockholders | 19,490 | |||
Total estimated shares of Holdings outstanding at the merger date | 43,790 | |||
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(In thousands) | ||||
Tax related receivables | $ | 4,684 | ||
Refunds received after signing the merger agreement | 1,432 | |||
Tax related liabilities | (2,202 | ) | ||
Expected return of 280G escrow net of excess limitation | 1,867 | |||
Estimated allowed expenses andout-of-pocket costs | (500 | ) | ||
Total estimated aggregate CVR value | $ | 5,281 | ||
• | The tax related receivables and tax related liabilities represent amounts that have been reflected in Voyager’s historical financial statements in accordance with U.S. GAAP. For these elements, management assumed that the book value of these assets and liabilities approximates their fair value. |
• | Refunds received after signing the merger agreement represent actual cash receipts received between the signing of the agreement and September 30, 2009. |
• | The expected return of 280G escrow net of excess limitation reflects management’s expectations that no payments made in connection with the mergers will trigger any 280G tax“gross-up” obligations and that the entire $3.0 million to be set aside in an escrow fund to satisfy this potential obligation will be available for the CVR, net of an excess limitation of $1.1 million, which is the value applicable when Voyager’s cash available for the cash election is equal to $42.5 million. | |
• | Estimated allowed expenses and out-of-pocket costs represent the estimated costs of collecting tax refunds and administering the CVR over its duration. |
Estimated | ||||||||||||
Estimated | High End of | |||||||||||
Minimum CVR | CVR | CVR | ||||||||||
Estimated fair value of the CVR | $ | — | $ | 5,281 | $ | 11,000 | ||||||
Total purchase price consideration as detailed below | 178,898 | 184,179 | 189,898 | |||||||||
Allocation to goodwill as described in Note 3 below | 59,465 | 64,746 | 70,465 |
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(In thousands) | ||||
Cash paid to shareholders making the cash election | $ | 67,500 | ||
Cash paid to shareholders for specified tax refunds | 15,523 | |||
Fair value of shares of Holdings issued to shareholders | 95,694 | |||
Fair value of equity awards to be converted at acquisition | 181 | |||
Fair value of the CVR | 5,281 | |||
Total consideration | $ | 184,179 | ||
Note 3 — | Preliminary Estimated Purchase Price Allocation |
(In thousands) | ||||
Cash and cash equivalents | $ | 85,325 | ||
Accounts receivable | 14,789 | |||
Income tax receivable | 4,684 | |||
Inventory | 12,895 | |||
Other current assets | 4,605 | |||
Property, plant and equipment | 1,815 | |||
Intangible assets | 42,346 | |||
Other assets | 1,536 | |||
Accounts payable and accrued expenses | (16,472 | ) | ||
Deferred revenue | (19,322 | ) | ||
Capital lease obligations | (215 | ) | ||
Other liabilities | (12,553 | ) | ||
Goodwill | 64,746 | |||
Total net assets acquired | $ | 184,179 | ||
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(In thousands) | ||||
Curriculum | 34,286 | |||
Customer relationships | 5,400 | |||
Tradenames and trademarks | 2,660 | |||
Total intangible assets acquired | $ | 42,346 | ||
• | The percentage of projected revenues allocated to products versus other factors that influence customer purchasing decisions, estimated at 85.0% based on management’s understanding of customer purchasing decisions and marketing strategies utilized by Voyager. | |
• | A discount rate of 17.8%, based on a weighted average cost of capital analysis that considered market, industry, size and company specific risks. | |
• | Annual revenue growth rates ranging from 3.0% to 8.7%. | |
• | A curriculum content turnover rate of 10.0% per year in the first three years, with greater turnover of 25.0% in year four to represent a commonly expected major upgrade to the curriculum. |
• | The percentage of projected revenues allocated to customer relationships versus other factors that influence customer purchasing decisions, estimated at 15.0% based on management’s understanding of customer purchasing decisions and marketing strategies utilized by Voyager. | |
• | A discount rate of 17.8%, based on a weighted average cost of capital analysis that considered market, industry, size and company specific risks. | |
• | Annual revenue growth rates ranging from 3.0% to 8.7%. | |
• | Customer retention rates based on analysis of existing and future estimated customer turnover. |
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• | An estimated royalty rate of 0.5%, determined through profit sharing analysis to consider the effect of a change in the tradename/trademark on revenues and industry royalty rates as compared to retail trademarks. | |
• | A discount rate of 17.8%, based on a weighted average cost of capital analysis that considered market, industry, size and company specific risks. | |
• | Annual revenue growth rates ranging from 3.0% to 8.7%. |
Note 4 — | Pro Forma Adjustments |
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(In thousands) | ||||
Change in control payments with subsequent service requirements | $ | 2,690 | ||
Estimated maximum potential amount of 280G payments | 3,000 | |||
Severance benefits | 1,309 | |||
Guaranteed bonuses | 722 | |||
Change in control payment | 338 | |||
Other payments due upon change in control | 399 | |||
Total payments related to the merger | 8,458 | |||
Less: 280G payments deemed unlikely to be triggered | (3,000 | ) | ||
Less: amounts accrued at September 30, 2009 | (2,203 | ) | ||
Less: amounts with subsequent service requirements | (2,690 | ) | ||
$ | 565 | |||
• | future costs to service the obligations, estimated to be approximately 30% of the related revenue based on management’s review of related expenses and operating costs associated with Voyager’s online content; | |
• | a normal profit margin percentage of 42.9%, based on an analysis of pretax margins for providers of online applications; and | |
• | a discount rate of 5.75%. |
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Holdings shares to be issued to existing Cambium stockholder | 20,454 | |||
Additional shares to be issued for $25 million capital contribution to Holdings to be made immediately prior to closing by the Cambium stockholder | 3,846 | |||
Estimated Holdings shares to be issued to existing Voyager stockholders | 19,490 | |||
Total estimated shares of Holdings outstanding at the merger closing date | 43,790 | |||
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• | The Cambium Specified Asset Recoupment Amount, which is based upon the net amount of recoveries that Cambium receives on and after June 1, 2009, including periods after the effective time of the mergers, with respect to an embezzlement matter that was discovered by Cambium in April 2008. To date, Cambium has received net recoveries of approximately $535,000 with respect to this matter and, although we cannot assure you of the actual amount of net recoveries that Cambium will receive, management believes that it is likely that the maximum amount it will be able to recover is $4,250,000. The Cambium Specified Asset Recoupment Amount equals 0.45 multiplied by the quotient of the aggregate net recoveries divided by $6.50. Thus, for purposes of calculating the Base Amount and Likely Maximum Amount described elsewhere in this proxy/prospectus, we have included 37,038 shares in the Base Amount (correlating to a net recovery of $535,000) and 294,230 shares in the Likely Maximum Amount (correlating to a net recovery of $4,250,000) with respect to the Cambium Specified Asset Recoupment Amount. |
• | The Additional Share Amount, which will be calculated over a period commencing at the effective time of the mergers and ending two years thereafter. The Additional Share Amount will equal the number of shares of Voyager common stock, if any, that are surrendered upon consummation of the Voyager merger in excess of the sum of the 29,874,145 shares that are known to be currently outstanding plus the number of shares of Voyager common stock that are issued upon the exercise of options known to be currently outstanding, provided that the maximum Additional Share Amount is capped at a maximum of 145,000 shares. At present, we do not believe that any such additional shares will be surrendered. Accordingly, for purposes of calculating the Base Amount, we have not included any shares with respect to the Additional Share Amount. Because the parties agreed to limit the Additional Share Amount to a maximum of 145,000 shares, we have included 145,000 shares in the Likely Maximum Amount with respect to the Additional Share Amount. |
• | The Formula Amount, which adds shares to the Holdings Warrant only if, prior to completion of the mergers, equity cure payments are made under Cambium’s existing credit agreements, debt is retired under those agreements or payments are made to obtain default-related waivers under those agreements. To date, the only applicable event is an equity cure payment of $2,959,000 made in August 2009, as disclosed elsewhere in this proxy statement/prospectus. Cambium does not anticipate making any further payments covered by the Formula Amount between the date of this proxy statement/prospectus and the completion of the mergers. Subject to qualifications that are not relevant to the equity cure payment that has previously been made, the Formula Amount equals the equity cure payment of $2,959,000 divided by $6.50, or 455,230 shares. Because the equity cure payment has been made and Cambium does not anticipate making any additional payments that will impact the Formula Amount, we have included 455,230 shares in both the Base Amount described below and the Likely Maximum Amount described below with respect to the Formula Amount. |
• | 40,081 shares issuable under the Cambium Specified Asset Recoupment is based on the property held for sale on Cambium’s historical balance sheet as of September 30, 2009 of $0.2 million plus |
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$0.4 million cash received in the period between June 1, 2009 and September 30, 2009, divided by $6.50 per share, and then multiplied by 0.45. |
• | No shares issuable for Additional Share Amount, since the number of shares of Voyager at closing is expected to equal 29,874,145 shares. |
• | Shares issuable under the Formula Amount are 455,230. As of August 14, 2009, Cambium was in non-compliance with its debt covenants. On August 14, 2009, Cambium notified both its senior secured lenders and senior unsecured debt holders that it intended to cure the noncompliance. On August 17, 2009, $3.0 million of capital was contributed by the Cambium stockholder to Cambium to fund the cure. On August 20, 2009, Cambium paid the $3.0 million to the senior secured lenders and the principal amount outstanding on Cambium’s senior secured credit agreement was reduced by a corresponding amount. To obtain the number of shares issuable under the warrant, the $3.0 million payment is divided by $6.50. |
Shares | Liability | |||||||
Exercisable under | Recorded at the | |||||||
the warrant | Merger Date | |||||||
Shares for pro forma purposes as of September 30, 2009 | 495,311 | $ | 2,428 | |||||
Base Amount | 492,268 | 2,413 | ||||||
Likely Maximum Amount | 894,460 | 4,384 |
• | 7,500,000 shares of common stock (subject to adjustment in the event of any dividend, stock split, combination or similar recapitalization event); or | |
• | the number of shares of common stock that Cambium’s stockholder and funds managed or controlled by VSS may purchase from time to time during the24-month subscription period for an aggregate purchase price of $20 million (based upon the per share purchase price described below). |
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Calculated | Historical | Adjustment for | ||||||||||||
Amortization for | Amortization for | the Year Ended | ||||||||||||
Amortization Method and | Year Ended | Year Ended | December 31, | |||||||||||
Useful Life | December 31, 2008 | December 31, 2008 | 2008 | |||||||||||
Curriculum | Sum of years digits - 8 years | $ | 7,511 | $ | 18,497 | $ | 10,986 | |||||||
Customer relationships | Straight-line - 10 years | 540 | 546 | 6 | ||||||||||
Tradenames and trademarks | Straight-line - 10 years | 266 | 412 | 146 | ||||||||||
$ | 8,317 | $ | 19,455 | $ | 11,138 | |||||||||
Calculated | Historical | Adjustment for | ||||||||||||
Amortization for | Amortization for | the Nine Months | ||||||||||||
Amortization Method and | Nine Months Ended | Nine Months Ended | Ended September 30, | |||||||||||
Useful Life | September 30, 2009 | September 30, 2009 | 2009 | |||||||||||
Curriculum | Sum of years digits - 8 years | $ | 4,929 | $ | 11,108 | $ | 6,179 | |||||||
Customer relationships | Straight-line - 10 years | 405 | 396 | (9 | ) | |||||||||
Tradenames and trademarks | Straight-line - 10 years | 200 | 296 | 96 | ||||||||||
$ | 5,534 | $ | 11,800 | $ | 6,266 | |||||||||
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Nine Months | ||||||||
Year Ended | Ended | |||||||
December 31, 2008 | September 30, 2009 | |||||||
Holdings shares to be issued to existing Cambium stockholder | 20,454 | 20,454 | ||||||
Additional shares to be issued for $25 million capital contribution to be made immediately prior to closing by the Cambium stockholder | 3,846 | 3,846 | ||||||
Estimated Holdings shares to be issued to existing Voyager stockholders | 19,490 | 19,490 | ||||||
Total estimated shares of Holdings outstanding at the merger date | 43,790 | 43,790 | ||||||
Basic and diluted shares outstanding per the Voyager historical statement of operations | 29,871 | 29,874 | ||||||
Increase to basic and diluted shares outstanding for the pro forma condensed combined statement of operations | 13,919 | 13,916 | ||||||
Year Ended December 31, 2008 | ||||||||||||
Cash Paid for | Cash Paid for | Cash Paid for | ||||||||||
Cash Election of | Cash Election of | Cash Election of | ||||||||||
$67.5 million | $65.0 million | $62.5 million | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Holdings shares to be issued to existing Cambium stockholder | 20,454 | 20,454 | 20,454 | |||||||||
Additional shares to be issued for $25 million capital contribution to be made immediately prior to closing by the Cambium stockholder | 3,846 | 3,846 | 3,846 | |||||||||
Estimated Holdings shares to be issued to existing Voyager stockholders | 19,490 | 19,874 | 20,259 | |||||||||
Total estimated shares of Holdings outstanding at the merger date | 43,790 | 44,174 | 44,559 | |||||||||
Pro forma basic and diluted net loss per common share | $ | (3.53 | ) | $ | (3.50 | ) | $ | (3.46 | ) | |||
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Nine Months Ended September 30, 2009 | ||||||||||||
Cash Paid for | Cash Paid for | Cash Paid for | ||||||||||
Cash Election of | Cash Election of | Cash Election of | ||||||||||
$67.5 million | $65.0 million | $62.5 million | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Holdings shares to be issued to existing Cambium stockholder | 20,454 | 20,454 | 20,454 | |||||||||
Additional shares to be issued for $25 million capital contribution to be made immediately prior to closing by the Cambium stockholder | 3,846 | 3,846 | 3,846 | |||||||||
Estimated Holdings shares to be issued to existing Voyager stockholders | 19,490 | 19,874 | 20,259 | |||||||||
Total estimated shares of Holdings outstanding at the merger date | 43,790 | 44,174 | 44,559 | |||||||||
Pro forma basic and diluted net loss per common share | $ | (0.98 | ) | $ | (0.97 | ) | $ | (0.96 | ) | |||
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Nine Months | ||||||||
Year Ended | Ended | |||||||
December 31, 2008 | September 30, 2009 | |||||||
Board of directors fees included in Voyager’s historical financials | $ | 357,262 | $ | 183,304 | ||||
VSS management fees included in Cambium’s historical financial statements | 199,315 | 150,000 | ||||||
Total historical board and management fees | 556,577 | 333,304 | ||||||
Estimated board of director fees for non-employee directors of Holdings | 505,750 | 379,313 | ||||||
Total increase (decrease) in board and management fees | $ | (50,827 | ) | $ | 46,009 | |||
• | a fee equal to 1% of the gross proceeds of any debt or equity financing by Holdings; and | |
• | a fee equal to 1% of the enterprise value of any entities acquired or disposed of by Holdings. |
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Name | Age | Position(s) | ||||
CLASS I DIRECTORS(WHOSE TERMS AREEXPECTED TOEXPIRE IN 2010) | ||||||
David F. Cappellucci | 52 | Director and President | ||||
Two additional directors are expected to be designated by Cambium shortly following the effective time of the mergers. | ||||||
CLASS II DIRECTORS(WHOSE TERMS AREEXPECTED TOEXPIRE IN 2011) | ||||||
Neil Weiner | 49 | Director | ||||
Frederick J. Schwab | 70 | Director | ||||
Scott J. Troeller | 41 | Director | ||||
CLASS III DIRECTORS(WHOSE TERMS AREEXPECTED TOEXPIRE IN 2012) | ||||||
Richard J. Surratt | 48 | Director and Chief Executive Officer | ||||
Ronald Klausner | 56 | Director | ||||
Jeffrey T. Stevenson | 48 | Director | ||||
EXECUTIVE OFFICERSWHO ARE NOT DIRECTORS | ||||||
Bradley C. Almond | 42 | Chief Financial Officer | ||||
Todd W. Buchardt | 49 | General Counsel | ||||
John Campbell | 48 | Senior Vice President and President of Cambium Learning Technologies | ||||
George A. Logue | 58 | Executive Vice President and President of Supplemental Solutions | ||||
Alex Saltonstall | 34 | General Manager of Cambium Learning Technologies |
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• | cause any or all outstanding options or stock appreciation rights to become vested and immediately exercisable; | |
• | cause any or all outstanding restricted stock or restricted stock units to become vested; | |
• | cancel any option in exchange for a substitute option; | |
• | cancel any restricted stock or restricted stock units in exchange for restricted stock of or restricted stock units for the stock of any successor corporation; | |
• | redeem any restricted stock for cashand/or other substitute consideration with a value equal to the fair market value of a share of Holdings common stock on the date of the change in control; | |
• | cancel any option or stock appreciation right in exchange for cashand/or other substitute consideration with a value equal to the number of shares of Holdings common stock subject to that option, multiplied by the difference, if any, between the fair market value of a share of Holdings common stock on the date of the change in control and the exercise price of that option or right, or cancel the option or right without any payment if the exercise price exceeds the fair market value; or | |
• | cancel any restricted stock unit in exchange for cashand/or other substitute consideration with a value equal to the fair market value of a share of Holdings common stock on the date of the change in control. |
• | a consolidation or merger of Holdings, if Holdings is not the continuing or surviving corporation; | |
• | the sale or transfer of substantially all of Holdings’ assets; |
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• | the liquidation or dissolution of Holdings; | |
• | the acquisition by any person, corporation or entity of 50% or more of Holdings’ outstanding voting securities; or | |
• | the failure of the members of Holdings’ board of directors as of the closing of the mergers and any successors thereto who are approved by a vote of at least two-thirds of the current directors, to constitute a majority of Holdings’ board of directors. |
• | awards of options and stock appreciation rights issued to current and former employees and directors of Voyager in exchange for options and stock appreciation rights relating to common stock of Voyager under Voyager’s existing plans, which we refer to as assumed awards; and | |
• | awards of options to employees, officers and directors of Holdings as future incentives and subject to the terms described below, which we refer to as new awards. |
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Name | Title | Options | ||||
Ronald Klausner | Chief Executive Officer | 750,000 | ||||
David F. Cappellucci | President | 600,000 | ||||
John Campbell | Senior Vice President and President of Cambium Learning Technologies | 300,000 | ||||
Bradley C. Almond | Chief Financial Officer | 250,000 | ||||
George A. Logue | Executive Vice President and President of Supplemental Solutions | 250,000 | ||||
Total: | 2,150,000 | |||||
• | the annual cash retainer is $30,000; | |
• | the equity based compensation is $20,000 per year; and | |
• | no meeting fees are paid for regular board meetings. |
Fees Earned or | Stock | Option | ||||||||||||||
Paid in Cash | Awards | Awards | Total | |||||||||||||
Name | ($)(1) | ($) | ($)(2) | ($) | ||||||||||||
Frederick J. Schwab | 54,667 | — | — | 54,667 |
(1) | The fees earned or paid in cash consist of the following: an annual retainer in the amount of $30,000; a committee retainer in the amount of $21,000; and an equity award paid in cash in the amount of $3,667. | |
(2) | As of December 31, 2008, Mr. Schwab had 4,284 options outstanding. |
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• | advice in connection with the negotiation of agreements, contracts, documents, and instruments necessary to provide Cambium Learning with financing from banks on terms and conditions satisfactory to Cambium; and | |
• | financial, managerial, and operational advice in connection with Cambium’sday-to-day operations, including, without limitation, advice with respect to the development and implementation of strategies for improving the operating, marketing and financial performance of Cambium. |
• | a fee equal to 1% of the gross proceeds of any debt or equity financing by Holdings; and | |
• | a fee equal to 1% of the enterprise value of any entities acquired or disposed of by Holdings. |
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• | each person or group that is expected to become the beneficial owner of more than 5% of the common stock of Holdings upon completion of the mergers; | |
• | each person designated to be a director of Holdings; | |
• | the chief executive officer, the chief financial officer and each of the three other most highly compensated persons designated to be executive officers of Holdings as of the date of this proxy statement/prospectus; and | |
• | all persons currently designated to be directors and executive officers of Holdings as a group. |
• | there is no change in the beneficial ownership of Voyager common stock and Cambium common stock for any of the named stockholders, or for any other executive officer that is part of the designated group, between October 31, 2009 and the date of the closing of the mergers, except that each executive officer and director of Voyager forfeited all options beneficially owned by the officer or director, effective as of the closing of the mergers; |
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• | there are a total of 43,789,995 shares of Holdings common stock outstanding upon completion of the mergers, consisting of 24,300,466 shares of Holdings common stock issued to Cambium’s stockholder and 19,489,529 shares of Holdings common stock issued to the former Voyager stockholders; | |
• | in the Voyager merger, each Voyager stockholder receives 653 shares of Holdings common stock and $2,250 in cash for each 1,000 shares of Voyager common stock owned by such stockholder immediately prior to the completion of the mergers; and | |
• | the Holdings Warrant covers a total of 693,364 shares of Holdings common stock. |
Percentage of | ||||||||
Number of Shares of | Outstanding Holdings | |||||||
Name and Address of Beneficial Owner | Holdings Common Stock | Common Stock | ||||||
Stockholders Owning 5% or More: | ||||||||
VSS-Cambium Holdings III, LLC(1) | 24,993,830 | 56.2 | % | |||||
c/o Veronis Suhler Stevenson 350 Park Avenue New York, New York 10022 | ||||||||
Foxhill Capital, LLC(2) | 2,990,045 | 6.8 | % | |||||
502 Carnegie Center Suite 104 Princeton, New Jersey 08540 | ||||||||
SPO Partners & Co.(3) | 2,292,355 | 5.2 | % | |||||
591 Redwood Highway Suite 3215 Mill Valley, California 94941 | ||||||||
William E. Oberndorf(4) | 2,292,355 | 5.2 | % | |||||
1800 Valley View Lane Suite 400 Dallas, Texas 75234 | ||||||||
Directors and Executive Officers of Holdings: | ||||||||
Bradley C. Almond | 0 | * | ||||||
John Campbell(5) | 2,126 | * | ||||||
David F. Cappellucci | 0 | * | ||||||
Ronald Klausner | 2,288 | * | ||||||
Frederick J. Schwab(5) | 1,902 | * | ||||||
Jeffrey T. Stevenson(5) | 24,993,830 | 56.2 | % | |||||
Richard J. Surratt | 4,467 | * | ||||||
Scott J. Troeller(5) | 24,993,830 | 56.2 | % | |||||
Neil Weiner(6) | 2,990,045 | 6.8 | % | |||||
502 Carnegie Center Suite 104 Princeton, New Jersey 08540 | ||||||||
All executive officers and directors as a group(7) (12 persons) | 27,994,658 | 63.0 | % |
* | Represents less than 1%. | |
(1) | Includes 693,364 shares of Holdings common stock issuable upon exercise of the Holdings Warrant. |
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(2) | The share calculation is based on a Schedule 13D filed with the SEC on January 28, 2009. | |
(3) | The share calculation is based on a Schedule 13D/A filed with the SEC on August 12, 2008. |
(4) | Mr. Oberndorf is the chairman of the board of Voyager and one of four controlling persons of SPO Advisory Corp. Through relationships with SPO Advisory Corp., SPO Advisory Partners, L.P. and SF Advisory Partners, L.P. Mr. Oberndorf may be deemed to share investment and voting control with respect to 3,072,500 shares of Voyager common stock. He also may be deemed to beneficially own, through his control of family trusts, 437,998 shares of Voyager common stock. |
(5) | By virtue of their positions within VSS and by virtue of VSS’ equity interest in VSS-Cambium Holdings III, LLC, Mr. Stevenson and Mr. Troeller may be deemed to share investment and voting control with respect to the shares of Holdings common stock to be received by VSS-Cambium Holdings III, LLC. |
(6) | By virtue of his position within Foxhill Capital Partners, LLC, Mr. Weiner may be deemed to share investment control with respect to the shares of Holdings common stock to be received by Foxhill Capital, LLC. |
(7) | Includes shares deemed to be beneficially owned by Messrs. Stevenson, Troeller and Weiner, and 693,364 shares deemed to be issuable pursuant to the Holdings Warrant. |
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• | 7,500,000 shares of common stock (subject to adjustment in the event of any dividend, stock split, combination or similar recapitalization event); or | |
• | the number of shares of common stock that Cambium’s stockholder and funds managed or controlled by VSS may purchase from time to time during the24-month subscription period for an aggregate purchase price of $20 million (based upon the per-share purchase price described below). |
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• | Classified Board of Directors. Holdings’ board of directors is divided into three classes with staggered terms of office of three years each. The classification and staggered terms of office of Holdings’ |
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directors make it more difficult for a third party to gain control of Holdings’ board of directors. At least two annual meetings of stockholders, instead of one, generally would be required to effect a change in a majority of Holdings’ board of directors. |
• | Number of Directors; Board Vacancies; Term of Office. Holdings’ second amended and restated certificate of incorporation provides that the board of directors has the exclusive right to determine the number of directors and the exclusive right, by the affirmative vote of a majority of the remaining directors then in office, to fill vacancies on the board even if the remaining directors do not constitute a quorum. These provisions also state that any director elected to fill a vacancy will hold office for the remainder of the full term of the class of directors in which the vacancy occurred, rather than until the next annual meeting of stockholders, as would otherwise be the case. | |
• | Removal of Directors. Under Holdings’ second amended and restated certificate of incorporation, subject to the rights of one or more classes or series of preferred stock to elect one or more directors, a director may be removed only: |
• | for cause and only by the affirmative vote of at least a majority of all votes entitled to be cast by Holdings’ stockholders generally in the election of directors, voting together as a single class; or | |
• | for so long as Cambium’s stockholder and funds managed or controlled by VSS continue to beneficially own in the aggregate at least 25% of the outstanding shares of capital stock of Holdings, without cause and only by the affirmative vote of at least a majority of all votes entitled to be cast by Holdings’ stockholders generally in the election of directors. |
• | Preferred Stock. Under Holdings’ second amended and restated certificate of incorporation, the board of directors has authority to issue preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any of these series of preferred stock, all without approval of Holdings’ stockholders. The issuance of shares of preferred stock could harm the voting power of the holders of Holdings common stock and could have the effect of delaying, deferring or preventing a change in control or other corporate action. | |
• | Stockholder Requested Special Meetings. Holdings’ second amended and restated certificate of incorporation provides that special meetings of the stockholders may be called at any time by the chairperson of the board of directors, the chief executive officer of Holdings or a majority of the members of the board of directors. In addition, so long as Cambium’s stockholder and funds managed or controlled by VSS beneficially own in the aggregate at least 25% of the outstanding shares of capital stock of Holdings, Cambium’s stockholder or a fund controlled by VSS also may call a special meeting of the stockholders. No other Holdings stockholders are permitted to call a special meeting of the stockholders. | |
• | Stockholder Action by Written Consent. So long as Cambium’s stockholder and the funds managed or controlled by VSS beneficially own in the aggregate at least 25% of the outstanding shares of Holdings common stock, and subject to the terms of any preferred stock that may be issued, any action required or permitted to be taken by the Holdings stockholders may be taken without a meeting, without prior notice and without a vote, if the holders of outstanding Holdings capital stock having at least the minimum number of votes necessary to authorize the action consent in writing to the action. However, in the event that Cambium’s stockholder and the funds managed or controlled by VSS no longer beneficially own in the aggregate at least 25% of the outstanding shares of Holdings common stock, and subject to the terms of any preferred stock that may be issued, any action required or permitted to be taken by the Holdings stockholders must be taken at an annual or special meeting of the stockholders and may not be taken by written consent. | |
• | Authority to Amend Bylaws. Holdings’ second amended and restated certificate of incorporation provides that the board of directors has the power to alter, amend or repeal any provision of the bylaws or to make new bylaws, without the consent or vote of the stockholders of Holdings. Holdings’ stockholders only may effect changes to Holdings’ bylaws, or adopt new provisions for inclusion in the bylaws, with the affirmative vote of the holders of at least a majority of the capital stock of Holdings |
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entitled to vote generally in the election of directors, voting together as a single class, at any duly convened annual or special meeting of the stockholders. |
• | Advance Notice Provisions for Stockholder Nominations and Other Proposals. Holdings’ bylaws require advance written notice for stockholders to nominate persons for election as directors at, or to bring other business before, any meeting of stockholders. This bylaw provision limits the ability of stockholders to make nominations of persons for election as directors or to introduce other proposals unless Holdings is notified in a timely manner prior to the meeting. Thus, business to be conducted at any meeting of stockholders will be limited to business properly brought before the meeting by or at the direction of Holdings’ board of directors or by a stockholder of record who has given timely written notice to Holdings’ secretary of the stockholder’s intention to bring business before the meeting. These advance notice provisions are not applicable to Cambium’s stockholder or the funds managed or controlled by VSS for so long as Cambium’s stockholder and the funds managed or controlled by VSS collectively own in the aggregate at least 25% of the outstanding shares of capital stock of Holdings. | |
• | No Cumulative Voting. Holdings’ organizational documents do not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority stockholder holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative voting may have the effect of limiting the ability of minority stockholders to effect changes in the board and, as a result, may have the effect of deterring a hostile takeover or delaying or preventing changes in control or management of Holdings. |
• | the board of directors approves, prior to such date, either the proposed business combination or the proposed acquisition of stock that resulted in the stockholder becoming an interested stockholder; | |
• | upon completion of the transaction that results in the stockholder becoming an interested stockholder, the interested stockholder acquires at least 85% of those shares of the voting stock of the corporation which are not held by the directors, officers or certain employee stock plans; or | |
• | on or subsequent to that date, the business combination with the interested stockholder is approved by the board of directors and also approved at a stockholders’ meeting by the affirmative vote of the holders of at least two-thirds of the outstanding shares of the corporation’s voting stock, other than shares held by the interested stockholder. |
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• | the name and record address of the stockholder, and the beneficial owner, if any; | |
• | the class or series and number of shares of Holdings stock which are owned beneficially and of record by the stockholder and the beneficial owner, if any; |
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• | a description of any arrangement or understanding among the stockholder, the beneficial owner, if any, and anyone else acting in concert with the stockholder or beneficial owner, if any, relating to the nomination or proposal; | |
• | a description of any derivative, hedging, option, warrant or similar agreement entered into by or on behalf of the stockholder or the beneficial owner, if any, as of the date of the notice; | |
• | a representation that the stockholder is a holder of record entitled to vote at the meeting and intends to appear in person or by proxy to propose the business or nomination; | |
• | a representation whether the stockholder or beneficial owner, if any, intends to deliver a proxy statement or solicit proxies in support of the proposal or nomination; and | |
• | all other information relating to the stockholder and beneficial owner, if any, that is required to be disclosed in solicitations for proxies for the election of directors in an election contest, pursuant to Section 14(a) of the Exchange Act. |
• | a brief description of the business desired to be brought before the meeting; | |
• | the text of the proposal or business; | |
• | the reasons for conducting such business at the meeting; and | |
• | any material interest in the business of the stockholder and the beneficial owner, if any, on whose behalf the proposal is made. |
• | all information relating to the nominee that is required to be disclosed in solicitations for proxies for the election of directors in an election contest, pursuant to Section 14(a) of the Exchange Act; and | |
• | the nominee’s written consent to being named as a nominee in the proxy statement and to serving as a director if elected. |
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• | all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); |
• | the name and address of the stockholder; | |
• | the class and number of Voyager shares beneficially owned by the stockholder; and | |
• | at the request of the board of directors, that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee, as set forth above. |
• | a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; | |
• | the name and address of the stockholder proposing such business; | |
• | the class and number of Voyager shares beneficially owned by the stockholder; and | |
• | any material interest of the stockholder in the proposed business. |
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• | Intervention solutions, which includes specialized instructional materials and implementation related services, consisting of the following: |
• | Core intervention programs, offered with accompanying training that generally provides a full-year’s worth of literacy or math instruction to at-risk students and often serves as an alternative course of |
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study for those students performing far below grade level in order to accelerate learning. Products include LANGUAGE!, Readwell, Transitional Mathematics and Algebra Rescue. |
• | Supplementary intervention programsare offered in the areas of literacy, mathematics and behavior generally to supplement existing programs in use in the school or school district. These programs generally do not represent a complete course of study, but rather target specific skill areas and include assessments and instructional resources for students and professional development offerings for educators. Products include Step Up To Writing, REWARDS, DIBELS/IDEL, the Herman Method, LETRS and D.I.S.E. |
• | Services, which include institutes and conferences, hosted by Cambium, as well as consulting and school improvement services, all targeted at enhancing educator and administrator preparedness. | |
• | Learning technologies, which consist of a suite of assistive technologies that provide access to content for students with profound cognitive or physical disabilities and provide ongoing progress monitoring of student performance. |
• | Published Products: This operating segment includes instructional materials, teaching guides, teacher training, implementation services, and professional development services. The principal markets for these products are elementary and secondary schools. | |
• | Learning Technologies: This operating segment includes assistive and instructional technology and related services. The principal markets for these products are also elementary and secondary schools. | |
• | Other: This segment consists of unallocated corporate-related items. |
• | Cambium focuses its efforts on the Pre-K-12 at-risk and special education markets. Cambium believes that the Pre-K-12 at-risk and special education markets represent approximately 40% of the 54 million U.S. student population. These markets have traditionally been under-served by major providers of educational programs and services. Key federal and state programs address the specific needs of at-risk and special student populations. | |
• | Cambium seeks to combine its relationships with authors and researchers and its technological expertise to create content-driven offerings designed to provide school districts with tools to improve |
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the performance of at-risk and special student populations. Cambium has developed relationships with authors who are known for their expertise in improving the cognitive and behavioral performance of at-risk and special education students. These authors are engaged by Cambium to develop content and then to refine that content once feedback is obtained from Cambium’s customers. Cambium’s content is designed to benefit from Cambium’s assistive technology platforms, which feature data management and formative assessment reporting, enabling teachers to build upon core concepts and enabling students to scaffold from a limited educational base to more highly developed educational experiences. |
• | Cambium employs a multi-faceted sales strategy to increase its market penetration. Cambium employs multiple interrelated sales channels to market and sell its products and services. These channels include selling efforts by Cambium’s own direct sales force as well as by its authors, supplemented by product training sessions, strategic sales initiatives, direct catalog marketing, special customer events and resellers. Marketing and sales are focused on those schools and school districts having the significant percentages of at-risk and special student populations, with 36.7% of sales in 2008 derived from the 1,000 largest school districts in the United States. This focus has resulted in a broad customer base; during the three years ended December 31, 2008, no single customer has accounted for more than 3.0% of total sales in any one year and Cambium’s top ten customers have accounted for less than 16% of total sales. | |
• | Cambium has invested significant sums in its Frederick, Colorado distribution facility to support future growth. This facility has capacity which can be expanded within the current 185,000 square foot building footprint without a need to add-on to the existing building. | |
• | Cambium’s growth prospects derive from several potential sources. Cambium believes that its growth will be driven by a number of factors, including: |
• | expanding at-risk and special education populations; | |
• | increasing program penetration, especially in mathematics; | |
• | positive results achieved in school districts using Cambium’s programs; | |
• | growth in services such as teacher training and professional development; and | |
• | new programs addressing adjacent markets characterized by different student learning needs. |
• | Cambium intends to explore strategic acquisitions. Cambium operates in a highly fragmented market. Cambium believes that this fragmentation is likely to continue to present viable consolidation opportunities. Cambium intends to explore strategic product, service and company acquisitions in the future. |
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Revenues | ||||||
Year Ended | ||||||
Product Area | December 31, 2008 | Selected Brands/Services | ||||
(Dollars in millions) | ||||||
Intervention solutions | ||||||
Core programs | $ | 54.7 | LANGUAGE!; Read Well; Step up to Writing; Reward; Transitional Math; Voyages; Algebra Rescue; We Can!; Reading Central; Algebra Ready | |||
Supplemental programs | $ | 17.9 | DIBELS/IDEL; LETRS; Six Minute Solution; Coaching Reading; Stepping Stones to Literacy; Parareading; Spellography; Colleague in the Classroom | |||
Services | $ | 5.4 | Institutes & conferences; DoDEA; CTAG | |||
Learning technologies | $ | 21.7 | Kurzweil Educational Systems; IntelliTools; TSSR/Acceleration Station |
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• | Coaching. Cambium’s professionals perform in-class demonstration teaching and modeling to help teachers hone their skills, provide coaches with tools for classroom observations, and help principals improve classroom walk-throughs. | |
• | Program Evaluation. Cambium collects data on student achievement within schools to evaluate whether school programs match current research and best practices. Cambium examines the findings and creates results-oriented action plans for educators. | |
• | Professional Development. Cambium provides professional development for educators on topics such as reading, mathematics, behavioral management, assessment, curriculum development, leadership and summer school and after school interventions. |
• | Kurzweil 3000is a reading, writing and learning software package for students with dyslexia, attention deficit disorder or other learning difficulties, including physical impairments or language learning needs. | |
• | Kurzweil 1000provides visually impaired users access to printed and electronic materials. Documents and digital files are converted from text to speech and read aloud in a variety of voices that can be modified to suit individual preferences. In addition, this software provides users with document creation, and editing, studying and study skills for note-taking, summarizing and outlining text. |
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• | IntelliKeys®USBis a programmable alternative keyboard with supporting software for students or adults who have difficulty using a standard keyboard. | |
• | IntelliTools Classroom Suiteis an authoring and application tool intended to boost achievement on standards-based tests and help meet adequate yearly progress goals under the No Child Left Behind Act. | |
• | Curriculum Products. IntelliTools offers software products with a simple interface for students to use. The software includes lessons, activities and assessments that reinforce reading, writing and math skills with the capability to generate reports and provide detailed data tracking. |
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• | VSS-Cambium Holdings, LLC contributed the capital stock of Cambium Learning to VSS-Cambium Holdings IV, LLC, a newly formed, wholly owned subsidiary of VSS-Cambium Holdings, LLC; concurrently, VSS-Cambium Holdings IV, LLC assumed the obligations of VSS-Cambium Holdings, LLC under Cambium Learning’s senior secured and senior unsecured credit agreements; | |
• | Veronis Suhler Stevenson formed a wholly owned subsidiary, VSS-Cambium Holdings III, LLC, which in turn formed VSS-Cambium Holdings III Acquisition, LLC and VSS-Cambium Holdings II Corp. as its wholly owned subsidiaries; | |
• | VSS-Cambium Holdings III, LLC and VSS-Cambium Holdings, LLC entered into an agreement providing for VSS-Cambium Holdings, LLC to merge into VSS-Cambium Holdings III Acquisition, LLC with VSS-Cambium Holdings, LLC being the surviving entity; upon completion of that merger VSS-Cambium Holdings III, LLC will own, directly or indirectly, 100% of VSS-Cambium Holdings, LLC, VSS-Cambium Holdings IV, LLC, Cambium Learning and its subsidiaries, and VSS-Cambium Holdings II Corp.; and | |
• | VSS-Cambium Holdings III, LLC entered into a contribution agreement pursuant to which it has agreed to transfer its interests in VSS-Cambium Holdings, LLC (acquired upon completion of the above-mentioned merger) to VSS-Cambium Holdings II Corp, which will, upon completion of such contribution, own, directly or indirectly, 100% of VSS-Cambium Holdings, LLC, VSS-Cambium Holdings IV, LLC, Cambium Learning and its subsidiaries. |
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Year/Period | Amount | |||
2004 | $ | 1,912,795 | ||
2005 | 290,135 | |||
2006 | 3,261,132 | |||
January 1, 2007 — April 11, 2007 | 999,516 | |||
Total — Predecessor | 6,463,578 | |||
April 12, 2007 — December 31, 2007 | 5,731,671 | |||
2008 | 1,800,735 | |||
Total — Successor | 7,532,406 | |||
Total Embezzlement Loss | $ | 13,995,984 | ||
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• | persuasive evidence of an arrangement exists; | |
• | the products are shipped; | |
• | title and risk of loss transfer to the customer; | |
• | all significant obligations have been performed, and | |
• | collection is reasonably assured. |
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Incurred in | ||||||||||||||||||||||||
Successor | ||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||
Incurred in Nine | Incurred in Nine | Incurred in | January 29, 2007 | |||||||||||||||||||||
Total Incurred | Months Ended | Months Ended | Year Ended | through | ||||||||||||||||||||
Total Amount | as of September 30, | September 30, | September 30, | December 31, | December 31, | |||||||||||||||||||
Incurred | 2009 | 2009 | 2008 | 2008 | 2007 | |||||||||||||||||||
One-time termination benefits | $ | 314,643 | $ | 314,643 | $ | 15,944 | $ | 227,140 | $ | 238,394 | $ | 60,305 | ||||||||||||
Other associated costs | 347,617 | 347,617 | 40,489 | 238,785 | 307,128 | — | ||||||||||||||||||
$ | 662,260 | $ | 662,260 | $ | 56,433 | $ | 465,925 | $ | 545,522 | $ | 60,305 | |||||||||||||
Nine Month Ended | Year Ended | Year Ended | ||||||||||
September 30, | December 31, | December 31, | ||||||||||
2009 | 2008 | 2007 | ||||||||||
Beginning Balance | $ | 48,766 | $ | 60,305 | $ | — | ||||||
Accrued Expenses: | ||||||||||||
One-time termination benefits | 15,944 | 238,394 | 60,305 | |||||||||
Facility-related expenses | 40,489 | 307,128 | — | |||||||||
Cash Payments: | ||||||||||||
One-time termination benefits | — | (249,933 | ) | — | ||||||||
Facility-related expenses | (40,489 | ) | (307,128 | ) | — | |||||||
Ending Balance | $ | 64,710 | $ | 48,766 | $ | 60,305 | ||||||
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• | Availability of Governmental Funding. Educating at-risk and special education students requires a different approach than relying on traditional instructional materials, since these intervention programs often require detailed implementation and training and substantial commitment from school administrators and teachers. The costs of these programs are typically too substantial to be borne by private families. Thus, Cambium derives a significant portion of its revenues from public schools, which are heavily dependent on federal, state and local government funding. Shifts in priorities, as well as general reductions in funding, can delay or reduce Cambium’s revenues. While the availability of state and federal funding for elementary and high school education was expanded as a result of legislation such as No Child Left Behind and Reading First, recent reductions in and proposed eliminations of appropriations for these programs and governmental budget adjustments resulting from recent economic declines have caused and may continue to cause some school districts to reduce spending on Cambium’s products. |
• | Breadth of Product Offerings. Although school districts typically do not enter multi-year contracts with services or materials providers, high switching costs make it unusual for schools to purchase programs for just one year or to frequently switch between programs. Once established in a district, Cambium is thus positioned to retain and expand its footprint in that district. Cambium seeks to expand its footprint in particular districts by offering a full spectrum of product offerings for pre-kindergarten through 12th grade students. | |
• | Capacity to Attract and Retain High Quality Authors. Cambium believes that retaining skilled researchers and authors is critical to its efforts to develop and support its intervention programs, from initial concept to continued program sales and support. Cambium seeks to collaborate closely with its authors in developing new content and high-impact programs. Cambium believes that by providing authors with greater control and direct involvement in content development, authors become more vested in the products and their outcomes, which helps increase revenues. | |
• | Diversity of Cambium’s Sales Channels. Cambium employs multiple interrelated and supportive sales channels, including its sales force, its authors, product training sessions, strategic sales initiatives, direct marketing channels, reseller networks and other customer events. Cambium’s sales force focuses on the largest school districts. Cambium’s institutes and conferences complement the direct sales force by building brand and product awareness within key industry constituencies. | |
• | Adaptability and Functionality of Cambium’s Technology. Cambium uses technology to enrich its intervention programs, as well as to train the next generation of teachers. An important part of Cambium’s technology offerings is its suite of assistive technologies that target a range of student needs, including low-incidence disabilities and students who perform below grade level. |
• | Cost of sales, excluding pre-publication, publishing rights, trademarks and developed technology amortization. These costs include expenses to print, purchase and develop products and to provide services and support to Cambium’s customers, as well as royalties paid to authors. | |
• | Pre-publication, publishing rights, trademarks and developed technology amortization. Pre-publication expenses represent the amortized cost of the art, pre-press and other costs incurred in the creation of the |
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master copy of a book or other media. Publishing rights allow Cambium to publish and republish existing and future works, as well as transform, adapt, or create new works based on previously published materials. Cambium owns the trademarks for its core intervention programs as well as the IntelliTools and Kurzweil trademarks. The developed technology represents the value of the developed technology products, including IntelliTools and Kurzweil software products and IntelliTools hardware products. The useful life of publishing rights is based on the lives of the various titles involved, which is generally ten years. |
• | Selling and administrative expenses. These expenses consist principally of the costs incurred by Cambium in maintaining its various sales channels, including the salaries and commission paid to Cambium’s sales force, advertising and promotion costs, the cost of sales support activities, warehouse, shipping and corporate and administrative activities. | |
• | Other intangible asset amortization. Other intangible asset amortization represents the amortization of intangible assets not included in cost of sales. These assets were identified and valued at the date of the acquisition of Cambium Learning by Cambium and include customer relationships, contracts, reseller networks, conference attendees and non-compete agreements. | |
• | Acquired in-process research and development. When Cambium acquired Cambium Learning and its subsidiaries in April 2007, the acquiring company identified and allocated goodwill to the acquired assets. At the time, the acquired company was conducting research and development on certain new products which were not yet being sold as of the April 12, 2007 closing date. Under U.S. GAAP, Cambium was required to expense any premium in the purchase price over book value attributable to those products rather than treat any such premium as goodwill. These expenses are referred to in Cambium’s income statements as acquired in-process research and development. | |
• | Embezzlement and related expenses. As noted above, during 2008, Cambium discovered certain irregularities relating to the control and use of cash and certain other general ledger items which resulted in a misappropriation of assets over a period of more than four years. These irregularities were perpetrated by a former employee, resulting in substantial embezzlement losses and related expenses. | |
• | Goodwill impairment. As noted above, Cambium tests for impairment, at least annually and more frequently upon the occurrence of events which suggest that impairment may have occurred. |
• | such options will vest in equal installments on the first four anniversaries of the closing of the mergers, subject to earlier vesting upon a change in control of Holdings; | |
• | 75% of the options granted to each optionee will have a per-share exercise price equal to the greater of (i) $4.50 and (ii) the weighted-average price of Holdings common stock during a pre-established trading period and pursuant to a pre-established formula; | |
• | the remaining 25% of the options granted to each optionee will have a per-share exercise price equal to $6.50; and | |
• | the options will have a term of ten years, subject to earlier termination under specified circumstances. |
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• | a fee equal to 1% of the gross proceeds of any debt or equity financing by Holdings; and | |
• | a fee equal to 1% of the enterprise value of any entities acquired or disposed of by Holdings. |
• | 7,500,000 shares of common stock (subject to adjustment in the event of any dividend, stock split, combination or similar recapitalization event); or | |
• | the number of shares of common stock that Cambium’s stockholder and funds managed or controlled by VSS may purchase from time to time during the24-month subscription period for an aggregate purchase price of $20 million (based upon the per share purchase price described below). |
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Successor Period | Predecessor Period | ||||||||||||||||||||||||||||
from | from | ||||||||||||||||||||||||||||
Nine Months Ended | Year ended | January 29, 2007 | January 1, 2007 | Year ended | |||||||||||||||||||||||||
September 30, | December 31, | (inception) through | through | December 31, | |||||||||||||||||||||||||
(dollars in thousands) | 2009 | 2008 | 2008 | December 31, 2007 | April 11, 2007 | 2006 | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||||||
Product sales | |||||||||||||||||||||||||||||
Published Products | $ | 55,045 | $ | 56,931 | $ | 67,919 | $ | 57,323 | $ | 9,269 | $ | 72,318 | |||||||||||||||||
Learning Technologies | 15,286 | 16,715 | 21,288 | 13,943 | 5,970 | 20,563 | |||||||||||||||||||||||
Service revenues | |||||||||||||||||||||||||||||
Published Products | 7,193 | 8,189 | 10,141 | 9,339 | 3,060 | 13,119 | |||||||||||||||||||||||
Learning Technologies | 217 | 220 | 383 | 242 | 115 | 423 | |||||||||||||||||||||||
Total sales | 77,741 | 82,055 | 99,731 | 80,847 | 18,414 | 106,423 | |||||||||||||||||||||||
Cost and expenses | |||||||||||||||||||||||||||||
Cost of product sales, excluding pre-publication, publishing rights trademarks and developed technology amortization | |||||||||||||||||||||||||||||
Published Products | 16,243 | 16,799 | 20,042 | 20,785 | 3,966 | 25,078 | |||||||||||||||||||||||
Learning Technologies | 3,151 | 4,315 | 5,830 | 4,001 | 1,606 | 6,378 | |||||||||||||||||||||||
Other | 544 | 546 | 739 | 210 | 61 | 257 | |||||||||||||||||||||||
Pre-publication, publishing rights, trademark and developed technology amortization Published Products | 12,428 | 11,744 | 15,698 | 11,498 | 2,917 | 9,161 | |||||||||||||||||||||||
Learning Technologies | 1,085 | 1,197 | 1,598 | 1,344 | 595 | 2,174 | |||||||||||||||||||||||
Cost of service revenues | |||||||||||||||||||||||||||||
Published Products | 5,026 | 5,488 | 7,210 | 6,193 | 1,843 | 8,035 | |||||||||||||||||||||||
Learning Technologies | 122 | 158 | 253 | 119 | 65 | 223 | |||||||||||||||||||||||
Total cost of sales | 38,599 | 40,247 | 51,370 | 44,150 | 11,053 | 51,306 | |||||||||||||||||||||||
Selling and administrative | 31,812 | 35,030 | 44,628 | 29,927 | 20,815 | 45,636 | |||||||||||||||||||||||
Other intangible asset amortization | 4,881 | 6,485 | 8,650 | 7,229 | 311 | 1,013 | |||||||||||||||||||||||
Acquired in-process research and development | — | — | — | 890 | — | — | |||||||||||||||||||||||
Embezzlement and related expenses | (195 | ) | 8,684 | 7,254 | 5,731 | 1,000 | 3,261 | ||||||||||||||||||||||
Goodwill impairment | 9,105 | — | 75,966 | — | — | — | |||||||||||||||||||||||
Total cost and expenses | 84,202 | 90,446 | 187,868 | 87,927 | 33,179 | 101,216 | |||||||||||||||||||||||
Income (loss) from operations | (6,461 | ) | (8,391 | ) | (88,137 | ) | (7,080 | ) | (14,765 | ) | 5,207 | ||||||||||||||||||
Interest and other expenses, net | (14,891 | ) | (13,987 | ) | (19,415 | ) | (14,689 | ) | (741 | ) | (1,364 | ) | |||||||||||||||||
Gain from settlement with previous stockholders | — | 30,202 | 30,202 | — | — | — | |||||||||||||||||||||||
Loss on extinguishment of debt | — | (5,633 | ) | (5,633 | ) | — | — | — | |||||||||||||||||||||
Income (loss) from operations before taxes | (21,352 | ) | 2,191 | (82,983 | ) | (21,769 | ) | (15,506 | ) | 3,843 | |||||||||||||||||||
Income tax provision (benefit) | (5,043 | ) | (10,774 | ) | (13,423 | ) | (7,838 | ) | (3,694 | ) | 3,403 | ||||||||||||||||||
Net income (loss) | |||||||||||||||||||||||||||||
Published Products | (3,091 | ) | 780 | (77,354 | ) | 2,767 | (3,931 | ) | 5,585 | ||||||||||||||||||||
Learning Technologies | 3,210 | 1,331 | 1,381 | (616 | ) | 1,056 | 1,568 | ||||||||||||||||||||||
Other | (16,428 | ) | 10,854 | 6,413 | (16,082 | ) | (8,937 | ) | (6,713 | ) | |||||||||||||||||||
Net income (loss) | $ | (16,309 | ) | $ | 12,965 | $ | (69,560 | ) | $ | (13,931 | ) | $ | (11,812 | ) | $ | 440 | |||||||||||||
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Predecessor Period | ||||||||||||||||||||||||
Successor Period | from | |||||||||||||||||||||||
from January 29, | January 1, | |||||||||||||||||||||||
Nine Months Ended | Year ended | 2007 | 2007 | Year ended | ||||||||||||||||||||
September 30, | December 31, | (inception) through | through | December 31, | ||||||||||||||||||||
2009 | 2008 | 2008 | December 31, 2007 | April 11, 2007 | 2006 | |||||||||||||||||||
(as a percentage of total sales) | ||||||||||||||||||||||||
Net sales | ||||||||||||||||||||||||
Product sales | ||||||||||||||||||||||||
Published Products | 70.8 | % | 69.4 | % | 68.1 | % | 70.9 | % | 50.3 | % | 68.0 | % | ||||||||||||
Learning Technologies | 19.7 | % | 20.4 | % | 21.3 | % | 17.2 | % | 32.4 | % | 19.3 | % | ||||||||||||
Service revenues | ||||||||||||||||||||||||
Published Products | 9.3 | % | 10.0 | % | 10.2 | % | 11.6 | % | 16.6 | % | 12.3 | % | ||||||||||||
Learning Technologies | 0.3 | % | 0.3 | % | 0.4 | % | 0.3 | % | 0.6 | % | 0.4 | % | ||||||||||||
Total sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost and expenses | ||||||||||||||||||||||||
Cost of product sales, excluding pre-publication, publishing rights trademarks and developed technology amortization Published Products | 20.9 | % | 20.5 | % | 20.1 | % | 25.7 | % | 21.5 | % | 23.6 | % | ||||||||||||
Learning Technologies | 4.1 | % | 5.3 | % | 5.8 | % | 4.9 | % | 8.7 | % | 6.0 | % | ||||||||||||
Other | 0.7 | % | 0.7 | % | 0.7 | % | 0.3 | % | 0.3 | % | 0.2 | % | ||||||||||||
Pre-publication, publishing rights, trademark and developed technology amortization | ||||||||||||||||||||||||
Published Products | 16.0 | % | 14.3 | % | 15.7 | % | 14.2 | % | 15.8 | % | 8.6 | % | ||||||||||||
Learning Technologies | 1.4 | % | 1.5 | % | 1.6 | % | 1.7 | % | 3.2 | % | 2.0 | % | ||||||||||||
Cost of service revenues | ||||||||||||||||||||||||
Published Products | 6.5 | % | 6.7 | % | 7.2 | % | 7.7 | % | 10.0 | % | 7.6 | % | ||||||||||||
Learning Technologies | 0.2 | % | 0.2 | % | 0.3 | % | 0.1 | % | 0.4 | % | 0.2 | % | ||||||||||||
Total cost of sales | 49.7 | % | 49.0 | % | 51.5 | % | 54.6 | % | 60.0 | % | 48.2 | % | ||||||||||||
Selling and administrative | 40.9 | % | 42.7 | % | 44.7 | % | 37.0 | % | 113.0 | % | 42.9 | % | ||||||||||||
Other intangible asset amortization | 6.3 | % | 7.9 | % | 8.7 | % | 8.9 | % | 1.7 | % | 1.0 | % | ||||||||||||
Acquired in-process research and development | — | — | — | 1.1 | % | — | — | |||||||||||||||||
Embezzlement and related expenses | (0.3 | )% | 10.6 | % | 7.3 | % | 7.1 | % | 5.4 | % | 3.1 | % | ||||||||||||
Goodwill impairment | 11.7 | % | — | 76.2 | % | — | — | — | ||||||||||||||||
Total cost and expenses | 108.3 | % | 110.2 | % | 188.4 | % | 108.8 | % | 180.2 | % | 95.1 | % | ||||||||||||
Income (loss) from operations | (8.3 | )% | (10.2 | )% | (88.4 | )% | (8.8 | )% | (80.2 | )% | 4.9 | % | ||||||||||||
Interest and other expenses, net | (19.2 | )% | (17.0 | )% | (19.5 | )% | (18.2 | )% | (4.0 | )% | (1.3 | )% | ||||||||||||
Gain from settlement with previous stockholders | — | 36.8 | % | 30.3 | % | — | — | — | ||||||||||||||||
Loss on extinguishment of debt | — | (6.9 | )% | (5.6 | )% | — | — | — | ||||||||||||||||
Income (loss) from operations before taxes | (27.5 | )% | 2.7 | % | (83.2 | )% | (26.9 | )% | (84.2 | )% | 3.6 | % | ||||||||||||
Income tax provision (benefit) | (6.5 | )% | (13.1 | )% | (13.5 | )% | (9.7 | )% | (20.1 | )% | 3.2 | % | ||||||||||||
Net income (loss) | ||||||||||||||||||||||||
Published Products | (4.0 | )% | 1.0 | % | (77.6 | )% | 3.4 | % | (21.3 | )% | 5.2 | % | ||||||||||||
Learnings Technologies | 4.1 | % | 1.6 | % | 1.4 | % | (0.8 | )% | 5.7 | % | 1.5 | % | ||||||||||||
Other | (21.1 | )% | 13.2 | % | 6.4 | % | (19.9 | )% | (48.5 | )% | (6.3 | )% | ||||||||||||
Net income (loss) | (21.0 | )% | 15.8 | % | (69.7 | )% | (17.2 | )% | (64.1 | )% | 0.4 | % | ||||||||||||
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• | Published Products: This operating segment includes instructional materials, teaching guides, teacher training, implementation services, and professional development services. The principal markets for these products are elementary and secondary schools. | |
• | Learning Technologies: This operating segment includes assistive and instructional technology and related services. The principal markets for these products are also elementary and secondary schools. | |
• | Other: This segment consists of unallocated corporate-related items. |
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• | Change in Control Definition. Prior to the amendment, the original investors in Cambium Learning were required to own or control a majority of the outstanding economic or voting interests of Cambium Learning. This majority threshold is being reduced to 35%. | |
• | VSS Funds Ownership. VSS is not permitted to sell or otherwise transfer any of the Holdings common stock that it directly or indirectly owns, unless it continues to directly or indirectly own or control at least 35% of the outstanding Holdings common stock, and it has not sold or otherwise transferred, in the aggregate, more than 15% of its Holdings common stock. | |
• | Increase in Material Indebtedness. An event of default would occur if a “change in control” occurred under any of Cambium Learning’s other “material indebtedness.” The term “material indebtedness” includes the senior unsecured notes, as well as any other debt, the principal amount of which exceeds a specified threshold. The $5 million threshold is being increased under the amendment to $7.5 million. | |
• | Exceptions to Restricted Payments. Cambium Learning is prohibited from paying dividends, unless the specific type of payment is permitted. Additional types of payments are being permitted to allow the following: |
o | Up to $3.0 million to fund public company, administrative, overhead, franchise tax and related costs incurred by Holdings; and | |
o | Up to $750,000 in annual board of director compensation and expenses. |
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• | Permitted Acquisition Basket Reset. The amount of consideration payable in an acquisition is limited under the credit agreements, and the limitations are being reset after giving effect to the acquisition of Voyager Expanded Learning by Cambium Learning in connection with the mergers. The limitation will be reset to a cumulative $150 million amount, but any single acquisition is limited to $20 million until the ratio of senior secured debt to EBITDA (as calculated under the credit agreements) does not exceed 2.50 to 1.0, and the ratio of total leverage to EBITDA (as calculated under the credit agreements) does not exceed 3.50 to 1.0, at which time the single acquisition limit will be increased to $100 million. | |
• | Definition of Consolidated EBITDA. The definition of Consolidated EBITDA, which is used for calculating leverage ratios under the senior secured credit agreement, and the minimum EBITDA covenant under the senior unsecured credit agreement are being modified to allow additional add-backs for the following items: |
o | Deferred revenue associated with a permitted acquisition; | |
o | Up to $24.0 million in M&A costs related to the mergers; | |
o | Up to $2.0 million in costs incurred in closing of locations or lease terminations in connection with the mergers; | |
o | Up to $5.0 million in severance costs incurred in connection with the mergers; | |
o | Up to $3.0 million in integration costs incurred connection with the mergers; and | |
o | M&A costs for future transactions (whether or not completed) of up to $5.0 million for closed transactions and $0.5 million for failed transactions in any calendar year, and $2.0 million in the aggregate. |
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Total | 2009 | 2010 & 2011 | 2012 & 2013 | After 2013 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Senior Secured Notes as of December 31, 2008 | $ | 102.8 | $ | 1.3 | $ | 2.6 | $ | 98.9 | $ | — | ||||||||||
Senior Unsecured Notes as of December 31, 2008 | 52.3 | — | — | — | 65.6 | |||||||||||||||
Build-to-suit lease obligations as of December 31, 2008 | 8.5 | 1.0 | 2.0 | 2.2 | 3.3 | |||||||||||||||
Operating lease obligations as of December 31, 2008 | 3.7 | 1.3 | 1.5 | 0.9 | — |
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• | enable Cambium to attract and retain high-caliber, talented executives; | |
• | provide performance incentives for each named executive officer that are commensurate with each named executive officer’s direct contribution to Cambium’s performance; and | |
• | build value for equity owners by linking incentive compensation to Cambium’s performance. |
• | Cambium seeks to attract and retain the best available personnel for senior executive positions that substantially impact company performance, to provide additional incentives to employees, directors and consultants that are aligned with Cambium’s compensation practices for its senior executives, and to promote and foster the ongoing success of Cambium and its subsidiaries and other affiliates. | |
• | For all of its executive officers, Cambium seeks to tightly align the interests of management and investors to those financial and operating metrics most closely associated with growth in equity owner value. | |
• | Under Cambium’s Management Incentive Plan, or MIP, selected senior management employees of Cambium have been issued equity interests in an affiliate of Cambium called VSS-Cambium Management, LLC. Upon the occurrence of a “Realization Event” (as defined in the MIP and discussed below), |
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participants in the MIP will be entitled to receive a portion of any cash distributions payable to Cambium’s stockholder. |
• | Under Cambium’s general compensation philosophy, an executive officer’s total compensation will vary based on Cambium’s achievement of established financial objectives. |
• | base salary; | |
• | annual cash bonuses tied to Cambium’s achievement of certain financial targets and objectives; and | |
• | awards under the MIP. |
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Non- | ||||||||||||||||||||||||||||||||
Non-Equity | Qualified | |||||||||||||||||||||||||||||||
Incentive | Deferred | |||||||||||||||||||||||||||||||
Stock | Option | Plan | Compensation | All Other | Total | |||||||||||||||||||||||||||
Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Compensation | |||||||||||||||||||||||||
Name and Principal Position | ($) | ($) | ($) | ($) | ($) | ($) | ($)(1) | ($) | ||||||||||||||||||||||||
David F. Cappellucci, | 220,000 | — | — | — | — | — | 9,900 | 229,900 | ||||||||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||||||||||
Alex Saltonstall, General Manager of Cambium Learning Technologies | 161,666 | — | — | — | — | — | 7,683 | 169,349 |
(1) | Represents Cambium’s contribution to the individual’s 401(k) plan account. |
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• | Termination of employment by Cambium without cause (other than by reason of death or disability) or by Mr. Cappellucci for good reason. In the event of a termination of employment for either of these reasons, Mr. Cappellucci will be entitled to receive the following: |
• | his base salary through the date of termination of employment; | |
• | the amount of all then-unpaid expense reimbursements due to Mr. Cappellucci related to periods prior to the date of termination; | |
• | additional payments equal to Mr. Cappellucci’s base salary (at the rate in effect at the time of termination) payable in installments for a period of twelve months after termination of his employment or, at Cambium’s option, in exchange for enhanced non-compete protections, a period of 24 months after such termination; and | |
• | continuation of health and dental insurance benefits for a period of 12 months after termination of Mr. Cappellucci’s employment. |
• | Termination of employment by Cambium for cause or as a result of Mr. Cappellucci’s voluntary termination of his employment without good reason. In the event of a termination of employment for either of these reasons, Mr. Cappellucci will be entitled to receive his base salary through the date of termination and the amount of all then unpaid expense reimbursements due to Mr. Cappellucci related to periods prior to the date of termination. If such a termination were to occur as of December 31, 2008, no amount would be payable by Cambium to Mr. Cappellucci. | |
• | Termination of employment resulting from death or disability. In the event of a termination of employment resulting from Mr. Cappellucci’s death or disability, Mr. Cappellucci or his estate, as applicable, will be entitled to receive the following: |
• | his base salary through the date of termination of employment; | |
• | the amount of all then unpaid expense reimbursements due to Mr. Cappellucci related to periods prior to the date of termination; and | |
• | the amount of Mr. Cappellucci’s cash bonus for the year of termination, pro rated for the period through the date of termination of his employment, as determined by the Cambium board of directors in its sole discretion, taking into account Mr. Cappellucci’s performance prior to the date of termination. |
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• | Termination resulting from a realization event. In the event of a termination of Mr. Cappellucci’s employment in connection with a realization event, which is defined in the Cambium MIP and includes a change of control of Cambium or its parent company, Mr. Cappellucci will be entitled to receive his base salary through the date of termination of his employment and the amount of all then unpaid expense reimbursements due to Mr. Cappellucci related to periods prior to the date of termination. If such a termination were to occur as of December 31, 2008, no amount would be payable by Cambium to Mr. Cappellucci. |
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Total | ||||
(sq ft) | ||||
Owned | — | |||
Leased | 164,131 | |||
Total | 164,131 | |||
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RESULTS OF OPERATIONS FOR VOYAGER
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• | Sales of Voyager’s online subscription based products grew significantly in 2008. Voyager continues to see growth in 2009 and expects this trend to continue in the coming years. |
• | Voyager believes its product diversification, such as growth in the online offerings, math intervention and new reading intervention products for higher grades, will allow Voyager to strengthen its ability to sustain market share in a troubled market and capture market share when the market recovers. |
• | Voyager believes its focus on product usage and an overall partnership approach with the customer to implement its solutions with fidelity will result in higher success rates, and such success, if achieved, will lead to customer retention and growth through reference sales. |
• | Efforts were taken in 2008 to reduce Voyager’s cost structure for 2009, including a reduction in force, which better aligns Voyager’s cost structure to current market conditions. |
• | Voyager performed a goodwill impairment analysis in both the second and third quarters of 2009 as a result of the execution of the merger agreement in late June, which is considered a triggering event, and in consideration of the continuing impact of adverse marketplace and economic conditions. As a result of these analyses, Voyager recorded a goodwill impairment charge of $22.0 million in the second quarter and $5.2 million in the third quarter. Because the terms of the merger agreement are fixed, increases in Voyager’s booked net assets could result in future goodwill impairment charges. |
• | Sales and gross profit are subject to seasonality with the first and fourth quarters being the weakest. |
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Nine Months Ended | ||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2009 | 2008 | Year Over Year Change | ||||||||||||||||||||||
% of | % of | Favorable / (Unfavorable) | ||||||||||||||||||||||
Amount | Sales | Amount | Sales | $ | % | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Net sales | $ | 79.6 | 100.0 | $ | 76.4 | 100.0 | $ | 3.2 | 4.2 | |||||||||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | (26.3 | ) | (33.0 | ) | (27.8 | ) | (36.4 | ) | 1.5 | 5.4 | ||||||||||||||
Gross profit | 53.3 | 67.0 | 48.6 | 63.6 | 4.7 | 9.7 | ||||||||||||||||||
Research and development expense | (3.4 | ) | (4.3 | ) | (3.7 | ) | (4.9 | ) | 0.3 | 8.1 | ||||||||||||||
Sales and marketing expense | (22.6 | ) | (28.4 | ) | (25.4 | ) | (33.2 | ) | 2.8 | 11.0 | ||||||||||||||
General and administrative expense | (18.4 | ) | (23.1 | ) | (24.3 | ) | (31.8 | ) | 5.9 | 24.3 | ||||||||||||||
Depreciation and amortization expense | (14.6 | ) | (18.3 | ) | (16.1 | ) | (21.1 | ) | 1.5 | 9.3 | ||||||||||||||
Goodwill impairment | (27.2 | ) | (34.2 | ) | — | — | (27.2 | ) | (100.0 | ) | ||||||||||||||
Lease termination costs | — | — | (11.7 | ) | (15.3 | ) | 11.7 | 100.0 | ||||||||||||||||
Loss before interest, other income and income taxes | (32.9 | ) | (41.3 | ) | (32.6 | ) | (42.7 | ) | (0.3 | ) | (0.9 | ) | ||||||||||||
Net interest income (expense) | (0.5 | ) | (0.6 | ) | 0.5 | 0.7 | (1.0 | ) | 200.0 | |||||||||||||||
Other income (expense) | 1.0 | 1.3 | 0.8 | 1.0 | 0.2 | 25.0 | ||||||||||||||||||
Income tax benefit | — | — | — | — | — | — | ||||||||||||||||||
Net loss | $ | (32.4 | ) | (40.7 | ) | $ | (31.3 | ) | (41.0 | ) | (1.1 | ) | (3.5 | ) | ||||||||||
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Nine Months Ended | Year Over Year Change | |||||||||||||||
September 30, | September 30, | Favorable / (Unfavorable) | ||||||||||||||
2009 | 2008 | $ | % | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Interest income | $ | 0.1 | $ | 0.7 | (0.6 | ) | (85.7 | ) | ||||||||
Interest expense | (0.6 | ) | (0.2 | ) | (0.4 | ) | (200.0 | ) | ||||||||
Total | $ | (0.5 | ) | $ | 0.5 | $ | (1.0 | ) | (200.0 | ) | ||||||
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2007 as | 2007 in | 2006 as | 2006 in | |||||||||||||||||||||
Originally | Current Year | Originally | Current Year | |||||||||||||||||||||
Filed | Reclassifications | Presentation | Filed | Reclassifications | Presentation | |||||||||||||||||||
Cost of sales | $ | (55,720 | ) | $ | 19,528 | $ | (36,192 | ) | $ | (57,279 | ) | $ | 19,862 | $ | (37,417 | ) | ||||||||
Gross profit | 53,892 | 19,528 | 73,420 | 57,772 | 19,862 | 77,634 | ||||||||||||||||||
Selling and administrative expense | (86,529 | ) | 86,529 | — | (96,698 | ) | 96,698 | — | ||||||||||||||||
Sales and marketing expense | — | (29,587 | ) | (29,587 | ) | — | (27,614 | ) | (27,614 | ) | ||||||||||||||
General and administrative expense | — | (53,280 | ) | (53,280 | ) | — | (65,081 | ) | (65,081 | ) | ||||||||||||||
Depreciation and amortization expense | — | (23,190 | ) | (23,190 | ) | — | (23,865 | ) | (23,865 | ) |
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Fiscal | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Amount | Sales | Amount | Sales | Amount | Sales | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Net sales | $ | 98,531 | 100.0 | $ | 109,612 | 100.0 | $ | 115,051 | 100.0 | |||||||||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | (35,939 | ) | (36.5 | ) | (36,192 | ) | (33.0 | ) | (37,417 | ) | (32.5 | ) | ||||||||||||
Gross profit | 62,592 | 63.5 | 73,420 | 67.0 | 77,634 | 67.5 | ||||||||||||||||||
Research and development expense | (5,302 | ) | (5.4 | ) | (4,532 | ) | (4.1 | ) | (5,198 | ) | (4.5 | ) | ||||||||||||
Sales and marketing expense | (33,734 | ) | (34.2 | ) | (29,587 | ) | (27.0 | ) | (27,614 | ) | (24.0 | ) | ||||||||||||
General and administrative expense | (30,660 | ) | (31.1 | ) | (53,280 | ) | (48.6 | ) | (65,081 | ) | (56.6 | ) | ||||||||||||
Depreciation and amortization expense | (21,358 | ) | (21.7 | ) | (23,190 | ) | (21.2 | ) | (23,865 | ) | (20.8 | ) | ||||||||||||
Goodwill impairment | (43,141 | ) | (43.8 | ) | (67,232 | ) | (61.3 | ) | (42,496 | ) | (36.9 | ) | ||||||||||||
Lease termination costs | (11,673 | ) | (11.8 | ) | — | — | — | — | ||||||||||||||||
Loss from continuing operations before interest, other income (expense) and income taxes | (83,276 | ) | (84.5 | ) | (104,401 | ) | (95.2 | ) | (86,620 | ) | (75.3 | ) | ||||||||||||
Net interest income (expense) | 975 | 1.0 | 335 | 0.3 | (27,464 | ) | (23.9 | ) | ||||||||||||||||
Other income (expense), net | (363 | ) | (0.4 | ) | 4,408 | 4.0 | — | — | ||||||||||||||||
Income tax benefit | 1,160 | 1.2 | 12,396 | 11.3 | 64,063 | 55.7 | ||||||||||||||||||
Loss from continuing operations | $ | (81,504 | ) | (82.7 | ) | $ | (87,262 | ) | (79.6 | ) | $ | (50,021 | ) | (43.5 | ) | |||||||||
• | The increasing usage of web-based capabilities within Voyager’s curriculum, including Ticket to Read and VmathLive, has had a positive impact on student achievement and stand-alone sales of these products has increased. Voyager believes that such capabilities are an emerging trend within education and that Voyager is well positioned to capture market share in this space. |
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• | Voyager’s web-based products have seen a significant increase in usage outside of normal school hours, including weekends, which increases the advocacy of our products among influential groups, such as students, teachers and parents. | |
• | Participation in the 2008 Florida adoption has proved successful in generating sales, customer acceptance, and student achievement. | |
• | Voyager filed all of its fiscal quarterly reports for 2008 in January 2009. Upon filing these reports with the SEC, Voyager became current with its filings with the SEC after three years of delinquent reporting following the discovery of material irregularities in Voyager’s accounting in January 2006. |
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Reading programs | $ | 75.6 | $ | 87.1 | ||||
Math and science programs | 12.6 | 11.0 | ||||||
Professional development | 5.6 | 7.4 | ||||||
Other (primarily freight) | 4.7 | 4.1 | ||||||
Total | $ | 98.5 | $ | 109.6 | ||||
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2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
VED | $ | 15.8 | $ | 19.2 | ||||
Corporate | 14.9 | 34.1 | ||||||
Total | $ | 30.7 | $ | 53.3 | ||||
2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Interest income | $ | 1.5 | $ | 3.7 | ||||
Interest expense | (0.5 | ) | (3.4 | ) | ||||
Net interest income | $ | 1.0 | $ | 0.3 | ||||
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2008 | 2007 | |||||||
(Dollars in millions) | ||||||||
Taxes at statutory federal income tax rate | $ | (28.9 | ) | $ | (34.9) | |||
Non-deductible goodwill impairment | 15.1 | 23.5 | ||||||
Changes in valuation allowance | 13.5 | — | ||||||
Other | (0.9 | ) | (1.0) | |||||
Total tax benefit from continuing operations | $ | (1.2 | ) | $ | (12.4) | |||
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2007 | 2006 | |||||||
(Dollars in millions) | ||||||||
Reading programs | $ | 87.1 | $ | 91.6 | ||||
Math and science programs | 11.0 | 8.1 | ||||||
Professional development | 7.4 | 9.0 | ||||||
Other (primarily freight) | 4.1 | 6.4 | ||||||
Total | $ | 109.6 | $ | 115.1 | ||||
2007 | 2006 | |||||||
(Dollars in millions) | ||||||||
VED | $ | 19.2 | $ | 18.9 | ||||
Corporate | 34.1 | 46.2 | ||||||
Total | $ | 53.3 | $ | 65.1 | ||||
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2007 | 2006 | |||||||
(Dollars in millions) | ||||||||
Interest income | $ | 3.7 | $ | 1.1 | ||||
Debt | (3.4 | ) | (28.1 | ) | ||||
Other | — | (0.5 | ) | |||||
Net interest income (expense) | $ | 0.3 | $ | (27.5 | ) | |||
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First | Second | Third | Fourth | Total | ||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
2009 | ||||||||||||||||||||
Net sales | $ | 18,716 | $ | 28,293 | $ | 32,575 | $ | 79,584 | ||||||||||||
Gross profit | 12,625 | 18,780 | 21,881 | 53,286 | ||||||||||||||||
Loss from continuing operations before income taxes | (5,740 | ) | (22,429 | ) | (4,342 | ) | (32,511 | ) | ||||||||||||
Income tax expense (benefit) | 321 | 126 | 366 | 81 | ||||||||||||||||
Loss from continuing operations | $ | (5,419 | ) | $ | (22,303 | ) | $ | (4,708 | ) | $ | (32,430 | ) | ||||||||
Basic loss per share from continuing operations | (0.18 | ) | (0.75 | ) | (0.16 | ) | (1.09 | ) | ||||||||||||
Diluted loss per share from continuing operations | (0.18 | ) | (0.75 | ) | (0.16 | ) | (1.09 | ) | ||||||||||||
2008 | ||||||||||||||||||||
Net sales | $ | 15,637 | $ | 33,514 | $ | 27,267 | $ | 22,113 | $ | 98,531 | ||||||||||
Gross profit | 9,104 | 22,166 | 17,311 | 14,011 | 62,592 | |||||||||||||||
Loss from continuing operations before income taxes | (24,632 | ) | (1,601 | ) | (5,110 | ) | (51,321 | ) | (82,664 | ) | ||||||||||
Income tax expense (benefit) | — | — | — | 1,160 | 1,160 | |||||||||||||||
Loss from continuing operations | $ | (24,632 | ) | $ | (1,601 | ) | $ | (5,110 | ) | $ | (50,161 | ) | $ | (81,504 | ) | |||||
Basic loss per share from continuing operations | (0.82 | ) | (0.05 | ) | (0.17 | ) | (1.68 | ) | (2.73 | ) | ||||||||||
Diluted loss per share from continuing operations | (0.82 | ) | (0.05 | ) | (0.17 | ) | (1.68 | ) | (2.73 | ) | ||||||||||
2007 | ||||||||||||||||||||
Net sales | $ | 20,059 | $ | 36,330 | $ | 31,837 | $ | 21,386 | $ | 109,612 | ||||||||||
Gross profit | 8,478 | 21,032 | 17,002 | 7,380 | 53,892 | |||||||||||||||
Loss from continuing operations before income taxes | (15,885 | ) | (1,985 | ) | (3,207 | ) | (78,581 | ) | (99,658 | ) | ||||||||||
Income tax expense (benefit) | (6,074 | ) | (756 | ) | (1,226 | ) | (4,340 | ) | (12,396 | ) | ||||||||||
Loss from continuing operations | (9,811 | ) | (1,229 | ) | (1,981 | ) | (74,241 | ) | (87,262 | ) | ||||||||||
Earnings from discontinued operations, net of income tax | 4,594 | — | — | 866 | 5,460 | |||||||||||||||
Gain on sale of discontinued operations, net of income tax | 46,572 | — | — | — | 46,572 | |||||||||||||||
Net earnings (loss) | $ | 41,355 | $ | (1,229 | ) | $ | (1,981 | ) | $ | (73,375 | ) | $ | (35,230 | ) | ||||||
Loss per share from continuing operations | (0.33 | ) | (0.04 | ) | (0.07 | ) | (2.49 | ) | (2.92 | ) | ||||||||||
Earnings per share from discontinued operations | 0.15 | — | — | 0.03 | 0.18 | |||||||||||||||
Gain per share from sale of discontinued operations | 1.56 | — | — | — | 1.56 | |||||||||||||||
Basic earnings (loss) per share | 1.38 | (0.04 | ) | (0.07 | ) | (2.46 | ) | (1.18 | ) | |||||||||||
Loss per share from continuing operations | (0.33 | ) | (0.04 | ) | (0.07 | ) | (2.49 | ) | (2.92 | ) | ||||||||||
Earnings per share from discontinued operations | 0.15 | — | — | 0.03 | 0.18 | |||||||||||||||
Gain per share from sale of discontinued operations | 1.56 | — | — | — | 1.56 | |||||||||||||||
Diluted earnings (loss) per share | 1.38 | (0.04 | ) | (0.07 | ) | (2.46 | ) | (1.18 | ) | |||||||||||
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• | $6.1 million of expenditures related to property, equipment, curriculum development costs, and software; and |
• | $0.1 million for principal payments on capital leases. |
Total | 2009 | 2010 & 2011 | 2012 & 2013 | After 2013 | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Capital lease obligation as of December 31, 2008 | $ | 0.3 | $ | 0.2 | $ | 0.1 | $ | — | $ | — | ||||||||||
Operating lease obligation as of December 31, 2008 | $ | 3.3 | $ | 1.3 | $ | 1.4 | $ | 0.6 | $ | — |
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• | Provide that special meetings of the stockholders may be called only by or at the direction of Voyager’s board of directors. | |
• | Provide advance notice procedures with respect to stockholder proposals and nominations of candidates for election as directors other than nominations made by or at the direction of Voyager’s board of directors. The business to be conducted at any meeting of stockholders will be limited to business properly brought before the meeting by or at the direction of Voyager’s board of directors or by a stockholder of record who has given timely written notice to Voyager’s secretary of the stockholder’s intention to bring business before the meeting. | |
• | Do not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority stockholder holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative voting may have the effect of limiting the ability of minority stockholders to effect changes in the board and, as a result, may have the effect of deterring a hostile takeover or delaying or preventing changes in control or management of Voyager. | |
• | Provide that vacancies on Voyager’s board of directors may be filled by a majority of directors in office, although less than a quorum, or the sole remaining director, and not by the stockholders. |
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• | retain key executives during this uncertain period to achieve strategic objectives related to its remaining line of business; | |
• | complete the restatement of Voyager’s financial statements in compliance with applicable accounting standards as expeditiously as possible; and | |
• | settle various outstanding issues stemming from the restatement including shareholder lawsuits and a formal SEC investigation. |
• | base salary; | |
• | annual incentive compensation and bonuses; | |
• | benefits; and | |
• | severance. |
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• | Mr. Surratt’s target bonus award for 2008 equal to $573,750 was guaranteed through June 20, 2008 under his amended retention agreement and the target bonus for the year was paid. | |
• | Mr. Buchardt’s bonus of $148,328 reflects his achievement of favorable results with respect to extraordinary and unusual legal matters that arose following Voyager’s need for restated financial statements. | |
• | Mr. Klausner’s bonus of $100,000 reflects his efforts in introducing additional products for Voyager Education and the continued growth in the LearningA-Z and ExploreLearning product lines. | |
• | Mr. Asai’s 2008 bonus of $230,000 was two performance bonuses of $115,000 each for completing and filing Voyager’s financial statements for each of fiscal year 2006 and fiscal year 2007. | |
• | Mr. Campbell’s 2008 bonus of $132,480 was comprised of an incentive award of $75,000 guaranteed as part of a retention letter, $42,480 as earned based on an average 96% achievement of revenue (weighted 60%) and earnings before interest, taxes, depreciation and amortization (weighted 40%) targets for EL and LAZ, and $15,000 as a discretionary bonus for reasonable performance in a difficult year. |
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Non-Equity | ||||||||||||||||||||||||||||||||
Incentive | All | |||||||||||||||||||||||||||||||
Stock | Option | Plan | Other | |||||||||||||||||||||||||||||
Name and | Salary | Bonus | Awards | Awards | Compensation | Compensation | Total | |||||||||||||||||||||||||
Principal Position | Year | ($) | ($)(1) | ($)(2) | ($)(3) | ($) | ($)(4) | ($) | ||||||||||||||||||||||||
Richard J. Surratt | 2008 | $ | 721,812 | $ | 1,573,750 | $ | 55,557 | $ | 266,869 | $ | 2,617,988 | |||||||||||||||||||||
President and Chief Executive | 2007 | $ | 649,696 | $ | 1,973,750 | $ | 66,667 | $ | 378,963 | $ | 3,069,076 | |||||||||||||||||||||
Officer | 2006 | $ | 313,027 | $ | 150,000 | $ | 64,344 | $ | 335,079 | $ | 51,000 | $ | 201,472 | $ | 1,114,922 | |||||||||||||||||
Ronald Klausner | 2008 | $ | 578,582 | $ | 100,000 | $ | 753,364 | $ | 89,172 | $ | 1,521,118 | |||||||||||||||||||||
President, | 2007 | $ | 542,584 | $ | 75,000 | $ | 950,857 | $ | 105,363 | $ | 1,673,804 | |||||||||||||||||||||
Voyager Expanded Learning | 2006 | $ | 537,075 | $ | 868,146 | $ | 342,763 | $ | 1,747,984 | |||||||||||||||||||||||
Todd W. Buchardt | 2008 | $ | 351,370 | $ | 148,328 | $ | 109,451 | $ | 609,149 | |||||||||||||||||||||||
Senior Vice President, | 2007 | $ | 314,033 | $ | 313,500 | $ | 460,493 | $ | 109,831 | $ | 1,197,857 | |||||||||||||||||||||
General Counsel and Corporate | 2006 | $ | 300,742 | $ | 267,904 | $ | 384,076 | $ | 56,594 | $ | 1,009,316 | |||||||||||||||||||||
Secretary | ||||||||||||||||||||||||||||||||
John Campbell | 2008 | $ | 283,654 | $ | 90,000 | $ | 5,000 | $ | 42,480 | $ | 12,239 | $ | 433,373 | |||||||||||||||||||
Chief Operating Officer, Voyager Expanded Learning |
(1) | In the case of Mr. Surratt, the amount earned in 2008 represents a payment of $573,750 with respect to his 2008 annual bonus and $1,000,000 cash paid in July 2008 in lieu of any equity grants in 2008, in accordance with the retention agreement dated February 1, 2007 which guaranteed such annualized bonus through June 30, 2008 and the cash payment in lieu of equity grants. Voyager’s Compensation Committee exercised its discretion to pay Mr. Klausner’s bonus in recognition of his efforts in introducing additional products in the Voyager Education segment and the continued growth of the LearningA-Z and |
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ExploreLearnings product lines, even though the specific targets set for the Voyager Education segment were not met. The Compensation Committee also exercised its discretion to provide Mr. Buchardt a bonus in recognition of favorable results with respect to legal matters that arose following Voyager’s need for restatement of its financial statements. |
(2) | The amounts reported in this column for each executive reflect the compensation costs for financial reporting purposes for the year under Statement of Financial Accounting Standards No. 123R“Share-Based Payment”(SFAS No. 123R) for outstanding stock awards (other than stock options) granted in prior years. These are not amounts paid to or realized by the executive. Assumptions used in the calculation of these compensation costs are included in Notes 1 and 15 to Voyager’s Year-End Consolidated Financial Statements included elsewhere in this proxy statement/prospectus. However, pursuant to SEC rules, the amounts shown above do not reflect any assumption that a portion of this award will be forfeited. |
(3) | The amounts reported in this column for each executive reflect the compensation costs for financial reporting purposes for the year under SFAS No. 123R for stock options granted in prior years. The 2008 amount for Mr. Klausner includes a stock option expense of $854,076 and a stock appreciation rights expense of negative $100,712. These are not amounts paid to or realized by the executive, and no amounts were paid in 2008. Assumptions used in the calculation of these compensation costs are included in Notes 1 and 15 to Voyager’s Year-End Consolidated Financial Statements included elsewhere in this proxy statement/prospectus. However, pursuant to SEC rules, the amounts above do not reflect any assumption that a portion of the awards will be forfeited and do not reflect a forfeiture of an amount expensed in a prior year. More information regarding outstanding stock options is set forth in the 2008 Outstanding Equity Awards at Fiscal Year-End Table. | |
(4) | See Voyager’s All Other Compensation Table (and footnotes thereto) for details. | |
(5) | The executives did not participate in any Voyager defined benefit pension plan and there were no above market or preferential earnings with respect to Voyager’s nonqualified deferred compensation plans. Information regarding Voyager’s deferred compensation plans is set forth under Voyager’s 2008 Nonqualified Deferred Compensation Table. |
Cash | Other | |||||||||||||||||||||||||||
Awards in | Perq and | |||||||||||||||||||||||||||
Company | lieu of | Relocation | Tax | Personal | ||||||||||||||||||||||||
Life Ins. | Contributions | SERP | Expenses | Reimbursement | Benefits | |||||||||||||||||||||||
Name | Premiums | to 401(k) | (1) | (2) | (3) | (4) | Total | |||||||||||||||||||||
Richard J. Surratt | $ | 2,106 | $ | 6,900 | $ | 124,477 | $ | 76,417 | $ | 56,969 | $ | 266,869 | ||||||||||||||||
Ronald Klausner | $ | 1,741 | $ | 6,900 | $ | 80,531 | $ | 89,172 | ||||||||||||||||||||
Todd W. Buchardt | $ | 962 | $ | 6,900 | $ | 101,589 | $ | 109,451 | ||||||||||||||||||||
John Campbell | $ | 478 | $ | 6,900 | $ | 1,361 | $ | 3,500 | $ | 12,239 |
(1) | Represents cash that would otherwise have been contributed to the executive’s supplemental executive retirement benefits account under Voyager’s Executive Deferred Compensation Plan, but was distributed directly to the executive as a current cash payment. | |
(2) | Pursuant to the terms of his February 1, 2007 employment agreement, Voyager agreed to reimburse Mr. Surratt for relocation expenses plus any loss on the sale of his residence in Ann Arbor, Michigan (up to a maximum of $150,000). | |
(3) | For Mr. Surratt, the tax reimbursement amount represents the tax gross up on relocation expenses. For Mr. Campbell, the tax reimbursement amount represents the tax gross up on those items described in footnote (4). | |
(4) | Mr. Campbell’s benefits include $36 for tax return preparation, $2,864 for home office equipment, $302 for internet services, and $298 for subscriptions to financial services or publications. |
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Estimated Future Payouts | ||||||||||||
Under Non-Equity Incentive Plan Awards | ||||||||||||
Name | Threshold | Target | Maximum | |||||||||
Richard J. Surratt | — | — | — | |||||||||
Ronald Klausner | — | $ | 375,952 | — | ||||||||
Todd W. Buchardt | — | $ | 148,328 | — | ||||||||
John Campbell | — | $ | 177,000 | — |
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• | a change in control; or | |
• | both an acquisition of at least 30% of Voyager’s outstanding voting stock and a change in the board of directors. |
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Option Awards | ||||||||||||||||||||||||
Equity Incentive | ||||||||||||||||||||||||
Plan Awards: | ||||||||||||||||||||||||
Number of | Number of | Number of | ||||||||||||||||||||||
Securities | Securities | Securities | ||||||||||||||||||||||
Underlying | Underlying | Underlying | ||||||||||||||||||||||
Unexercised | Unexercised | Unexercised | Option | Option | ||||||||||||||||||||
Date of | Option (#): | Option (#): | Unearned | Exercise | Expiration | |||||||||||||||||||
Name | Grant | Exercisable | Unexercisable | Option (#)(1) | Price ($) | Date(2) | ||||||||||||||||||
Richard J. Surratt | — | — | — | — | — | — | ||||||||||||||||||
Ronald Klausner | 4/2/2003 | 100,000 | 21.15 | 4/2/2009 | ||||||||||||||||||||
2/4/2004 | — | — | 440,000 | 30.97 | 2/4/2014 | |||||||||||||||||||
4/24/2007 | (3) | 100,000 | 200,000 | — | 8.55 | 4/23/2012 | ||||||||||||||||||
Todd W. Buchardt | 2/26/1999 | 24,000 | — | — | 33.13 | 2/26/2009 | ||||||||||||||||||
10/12/2000 | 15,000 | — | — | 19.69 | 10/12/2010 | |||||||||||||||||||
2/28/2001 | 18,000 | — | — | 22.95 | 2/28/2011 | |||||||||||||||||||
3/6/2002 | 22,000 | — | — | 36.00 | 3/6/2012 | |||||||||||||||||||
3/5/2003 | 19,700 | — | — | 18.31 | 3/5/2009 | |||||||||||||||||||
John Campbell | 1/12/2004 | 9,000 | — | — | 30.08 | 1/12/2010 |
(1) | Unexercisable unearned options vest (i) based on performance determined on the basis of the rolling average of the fair market value of a share of Voyager common stock for a period of 90 consecutive trading days during the performance period or (ii) otherwise on the seventh year anniversary of the grant, provided the executive remains employed through such period. The stock price targets are consistent for all participants and range from $36.67 or $46.88 and above. The performance period for Mr. Klausner begins on January 1, 2005 and ended April 1, 2009. The performance period for Mr. Surratt and Mr. Buchardt begins on the grant date of November 2, 2005 and ended April 1, 2009. Mr. Surratt and Mr. Buchardt later agreed to a cancellation of their unexercisable unearned options. | |
(2) | On August 9, 2006, Voyager’s Compensation Committee extended the period of time that Mr. Klausner may exercise his outstanding vested stock options (other than his unexercisable unearned option grants) due to involuntary termination of employment by Voyager without cause or resignation for good reason up to 12 months after his termination but not beyond the original option expiration date. | |
(3) | Mr. Klausner received a grant of stock appreciation rights with respect to 300,000 shares of Voyager common stock on April 24, 2007. The base price for the SAR is $8.55, which was the closing price of a share of Voyager’s common stock on the grant date. The difference between the fair market value of a share of Voyager’s stock and the base price is payable on exercise in cash. The term of the SAR is five years, subject to earlier expiration in the event Mr. Klausner terminates employment under certain circumstances. Mr. Klausner will vest in 100,000 of the shares subject to this SAR on each of the first three anniversaries of the grant date, provided he remains continuously employed by Voyager on each such date. Notwithstanding the foregoing, vesting of the SAR will fully accelerate on a Change of Control of Voyager if he remains continuously employed on such date. |
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Aggregate | ||||||||||||||
Aggregate | Aggregate | Balance at | ||||||||||||
Earnings in 2008 | Withdrawals/ | 2008 Fiscal | ||||||||||||
Fiscal Year | Distributions | Year-End | ||||||||||||
Name | Plan | ($) | ($) | ($) | ||||||||||
Richard J. Surratt | Executive Deferred Compensation Plan(1) | 5,459 | 54,898 | — | ||||||||||
Ronald Klausner | Executive Deferred Compensation Plan(1) | (31,882 | ) | 444,357 | — | |||||||||
Todd W. Buchardt | Replacement Benefit Plan | 4,636 | 100,955 | |||||||||||
John Campbell | — | — | — | — |
(1) | The Voyager Executive Deferred Compensation Plan was terminated and all amounts were paid out by the end of 2008. The Voyager Executive Deferred Compensation Plan credited accounts of participants with deferrals by participants as well as supplemental executive retirement plan contributions by Voyager and adjusted account balances with earnings. | |
(2) | The Voyager replacement benefit plan was a plan that provided for amounts to be credited to certain highly compensated employees whose benefits under Voyager’s profit sharing plan were limited. No additional contributions were credited after December 31, 2000 under the replacement benefit plan but participants continue to receive an earnings adjustment. The earnings rate is determined each October 31 for the subsequent calendar year based on 120% of the120-month rolling average of10-year U.S. Treasury Notes. Upon a change of control of Voyager, the replacement benefit plan benefits are funded in a rabbi trust. Mr. Buchardt’s replacement benefit plan distribution will be paid in a lump sum after his termination of employment. Upon a change of control of Voyager, the replacement benefit plan benefits are funded in a rabbi trust. |
• | a single lump sum payment equal to a severance factor times his then current base salary; and | |
• | continued participation for up to a number of years equal to a severance factor in all medical, dental and vision plans in which the executive participates. |
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Name | Enhanced Severance (Years) | Regular Severance (Years) | ||||||
Richard J. Surratt | 2.0 | 1.5 | ||||||
Ronald Klausner | 1.5 | 1.0 | ||||||
Todd W. Buchardt | 1.5 | 1.0 |
• | mergers or business combinations in which Voyager’s existing stockholders do not continue to own more than 50% of Voyager; | |
• | stockholder approval of a plan of liquidation for Voyager (this criteria is not included in Mr. Klausner’s retention agreement); | |
• | certain events that result in the persons who are then the incumbent directors of Voyager ceasing to constitute a majority of Voyager’s board of directors; and | |
• | a sale, lease or transfer of substantially all of the assets of Voyager (an “Asset Sale”). |
• | an act of fraud, embezzlement or theft in connection with the executive’s duties or in the course of the executive’s employment; | |
• | unreasonable neglect or refusal by the executive to perform the executive’s material duties after notice; | |
• | the executive engages in willful, reckless, or grossly negligent misconduct which is or may be materially injurious to Voyager; or | |
• | the executive’s conviction of or plea of guilty ornolo contendere to a felony. |
• | the executive is no longer a direct report to Voyager’s Chief Executive Officer (or for Mr. Surratt, is no longer the Chief Executive Officer); |
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• | the executive is assigned any duties inconsistent in any material respect with his position, authority, duties or responsibilities, or any other action that results in a significant diminution in such position, authority, duties or responsibilities, unless the action is remedied by Voyager within ten days after receipt of notice; | |
• | the executive’s assignment for longer than six months to a location in excess of 50 miles from the executive’s then current office; | |
• | a reduction of the executive’s salary, or a reduction of the executive’s regular bonus target; or | |
• | a material failure to pay the executive’s salary, bonus, equity compensation or benefits under the retention agreement, without substitution of a benefit of at least equal value. |
• | a reduction in the executive’s rate of total compensation, in the aggregate, after taking into account the executive’s salary, bonus, incentive compensation, equity compensation, fringe benefits, retirement benefits and any other benefits or an adverse change in the form or timing of the payment of the executive’s salary, bonus or accrued benefits under the deferred compensation plan, as in effect prior to a Change of Control (other than an Asset Sale or an Acquisition of Greater than 30% of Voyager’s Outstanding Voting Stock and Board Change); or | |
• | the executive’s resignation from Voyager for any reason between December 29, 2007 and January 30, 2008 following an Asset Sale; however, the period during which the executive could voluntarily resign for Good Reason was subsequently renegotiated for Mr. Surratt to be delayed until June 30, 2008 to July 31, 2008 in connection with his becoming the Chief Executive Officer and for Mr. Buchardt was renegotiated to be throughout 2008 to encourage him to remain with Voyager in 2008 and in 2009, further renegotiated to provide for a voluntary resignation for Good Reason at any time. |
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Non-Change | Change of | |||||||||||||||||||||
of Control | Control | |||||||||||||||||||||
Termination | Termination | |||||||||||||||||||||
w/o Cause or | w/o Cause or | |||||||||||||||||||||
for Good | for Good | Change of | ||||||||||||||||||||
Name | Benefit | Reason | Reason | Death | Disability | Control | ||||||||||||||||
Richard J. Surratt | Severance(1) | $ | 1,012,500 | $ | 1,350,000 | $ | — | $ | — | $ | — | |||||||||||
Annual Incentive(2) | 573,500 | 573,500 | 573,500 | 573,500 | 573,500 | |||||||||||||||||
Benefit Continuation(3) | 15,615 | 20,281 | — | — | — | |||||||||||||||||
280G Tax Gross Up(4) | — | — | — | — | — | |||||||||||||||||
Total: | $ | 1,601,615 | $ | 1,943,781 | $ | 573,500 | $ | 573,500 | $ | 573,500 | ||||||||||||
Ronald Klausner | Severance(1) | $ | 537,075 | $ | 805,613 | $ | — | $ | — | $ | — | |||||||||||
Annual Incentive(2) | 375,953 | 375,953 | 375,953 | 375,953 | 375,953 | |||||||||||||||||
Benefit Continuation(3) | 8,797 | 13,195 | — | — | — | |||||||||||||||||
280G Tax Gross Up(4) | — | — | — | — | — | |||||||||||||||||
Total: | $ | 921,825 | $ | 1,194,761 | $ | 375,953 | $ | 375,953 | $ | 375,953 | ||||||||||||
Todd W. Buchardt | Severance(1) | $ | 296,656 | $ | 444,984 | $ | — | $ | — | $ | — | |||||||||||
Annual Incentive(2) | 148,328 | 148,328 | 148,328 | 148,328 | 148,328 | |||||||||||||||||
Benefit Continuation(3) | 10,411 | 15,616 | — | — | — | |||||||||||||||||
280G Tax Gross Up(4) | — | — | — | — | — | |||||||||||||||||
Total: | $ | 455,395 | $ | 608,928 | $ | 148,328 | $ | 148,328 | $ | 148,328 | ||||||||||||
John Campbell | Severance(1) | $ | 295,000 | $ | 295,000 | $ | — | $ | — | $ | — | |||||||||||
Annual Incentive(5) | 75,000 | 75,000 | — | — | 340,500 | |||||||||||||||||
Benefit Continuation(3) | 7,555 | 7,555 | — | — | — | |||||||||||||||||
Total: | $ | 377,555 | $ | 377,555 | $ | — | $ | — | $ | 340,500 |
(1) | Severance is calculated pursuant to their agreements as though the event occurred December 31, 2008. | |
(2) | Assumes the effective date of termination is December 31, 2008 and that the pro-rata payment under the Annual Incentive is equal to the award paid for the year. | |
(3) | The benefit continuation number is an estimate of the cost of health coverage continuation for the severance factor period described above with respect to the retention agreements. The number for Mr. Klausner sets forth the estimate of the cost of health coverage for one year since it was customary for Voyager to provide executives with health coverage for a period corresponding to their severance amount period. Voyager provides benefits on active-employee terms during the severance period. | |
(4) | Some payments received prior to December 31, 2008 could be treated as contingent on a change of control, if one were to occur on December 31, 2008. The estimated gross-up payment includes restoration of excise tax due on any such payments as well as the parachute portion of the payments shown on this table. | |
(5) | Mr. Campbell’s bonus was guaranteed to be at least 150% of his target bonus if Voyager were sold in 2008. |
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Number of Shares | Percent of Shares | |||||||
Name and Address of Beneficial Owner | Beneficially Owned | Beneficially Owned | ||||||
Foxhill Capital, LLC(1) | 4,578,935 | 15.3 | % | |||||
502 Carnegie Center Suite 104 Princeton, New Jersey 08540 | ||||||||
SPO Partners & Co. (2,3) | 3,521,612 | 11.8 | % | |||||
591 Redwood Highway Suite 3215 Mill Valley, CA 94941 | ||||||||
SPO Advisory Corp. (2,4) | 3,072,500 | 10.3 | % | |||||
591 Redwood Highway Suite 3215 Mill Valley, CA 94941 | ||||||||
Sterling Capital Management LLC(5) | 2,299,530 | 7.7 | % | |||||
Two Morrocroft Centre 4064 Colony Road, Ste 300 Charlotte, NC 28211 | ||||||||
Wells Fargo & Company(6) | 2,996,441 | 10.0 | % | |||||
420 Montgomery Street San Francisco, CA 94104 | ||||||||
Keystone, Inc.(7) | 2,613,000 | 8.6 | % | |||||
3100 Texas Commerce Tower 201 Main Street Fort Worth, TX 76102 | ||||||||
Columbia Wanger Asset Management, L.P.(8) | 2,000,000 | 6.7 | % | |||||
227 West Monroe Street, Ste 3000 Chicago, IL 60606 | ||||||||
Morgan Stanley(9) | 2,363,763 | 7.9 | % | |||||
1585 Broadway New York, NY 10036 | ||||||||
RBF Capital, LLC(10) | 1,512,000 | 5.1 | % | |||||
100 Drakes Landing Road, Suite 300 Greenbrae, CA 94904 | ||||||||
William E. Oberndorf(11) | 3,521,612 | 11.8 | % | |||||
Todd W. Buchardt(12) | 60,805 | * | ||||||
Ronald D. Klausner | 3,504 | * | ||||||
David G. Brown(13) | 16,543 | * | ||||||
Gary L. Roubos(14) | 15,076 | * |
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Number of Shares | Percent of Shares | |||||||
Name and Address of Beneficial Owner | Beneficially Owned | Beneficially Owned | ||||||
John F. Campbell(15) | 12,256 | * | ||||||
Frederick Schwab(16) | 7,197 | * | ||||||
Richard Surratt | 6,840 | * | ||||||
James P. Roemer(17) | 4,284 | * | ||||||
Bradley C. Almond | 0 | * | ||||||
All directors and executive officers as a Group (14 persons)(18) | 3,648,117 | 12.17 | % |
* | Less than 1% | |
(1) | This information is based on a Schedule 13D filed with the SEC on January 28, 2009. | |
(2) | This information is based on a Schedule 13D/A filed with the SEC on August 12, 2008. | |
(3) | Includes 437,998 shares that William E. Oberndorf may be deemed to beneficially own through his control of family trusts and also includes options to purchase 11,114 shares that are currently exercisable. | |
(4) | As general partner of SF Advisory Partners, L.P., SPO Partners II, L.P. and SPO Advisory Partners L.P., SPO Advisory Corp. may be deemed to share investment and voting control with respect to these shares. Messrs. William Oberndorf, John Scully, William Patterson and Edward McDermott are the controlling persons of SPO Advisory Corp. | |
(5) | This information is based on a Schedule 13G/A filed with the SEC on January 22, 2009. | |
(6) | This information is based on a Schedule 13G/A filed with the SEC on March 10, 2009. | |
(7) | This information is based on a Schedule 13G/A filed with the SEC February 4, 2003. | |
(8) | This information is based on a Schedule 13G filed with the SEC on January 12, 2007. | |
(9) | This information is based on a Schedule 13G filed with the SEC on February 17, 2009. | |
(10) | This information is based on a Schedule 13G filed with the SEC on May 1, 2009. | |
(11) | Mr. Oberndorf through relationships with SPO Advisory Corp., SPO Advisory Partners, L.P. and SF Advisory Partners, L.P., may be deemed to share investment and voting control with respect to 3,072,500 shares. Includes 437,998 shares that Mr. Oberndorf may be deemed to beneficially own through his control of family trusts and includes an additional 11,114 shares granted under Voyager’s stock option plans, which are currently exercisable. | |
(12) | Includes 55,000 options to purchase shares held by Mr. Buchardt, granted under Voyager’s stock option plans, which are currently exercisable. | |
(13) | Includes 11,114 options to purchase shares held by Mr. Brown, granted under Voyager’s stock option plans, which are currently exercisable. | |
(14) | Includes 11,114 options to purchase shares held by Mr. Roubos, granted under Voyager’s stock option plans, which are currently exercisable. | |
(15) | Includes 9,000 options to purchase shares held by Mr. Campbell, granted under Voyager’s stock option plans, which are currently exercisable. | |
(16) | Includes 4,284 options to purchase shares held by Mr. Schwab, granted under Voyager’s stock option plans, which are currently exercisable. | |
(17) | Includes 4,284 options to purchase shares held by Mr. Roemer, granted under Voyager’s stock option plans, which are currently exercisable. |
(18) | Percentage is based upon 29,874,145 aggregate shares of common stock outstanding as of October 31, 2009, as adjusted to reflect options that are exercisable within 60 days of that date. As of the date of this proxy statement/prospectus, all stock options beneficially owned by the group areout-of-the-money because the current stock price is less than the exercise price for all of the vested options. Each member of the group has agreed to forfeit all options beneficially owned by the member, effective upon the closing of the mergers. |
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Report of Independent Registered Public Accounting Firm | F-2 | |||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-8 | ||||
F-10 | ||||
Voyager | ||||
Interim Consolidated Financial Statements: | ||||
F-51 | ||||
F-52 | ||||
F-53 | ||||
F-54 | ||||
F-55 | ||||
Year-End Consolidated Financial Statements: | ||||
F-63 | ||||
F-65 | ||||
F-66 | ||||
F-67 | ||||
F-68 | ||||
F-69 | ||||
Pro Forma | ||||
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2009 | 158 | |||
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2008 | 159 | |||
Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2009 | 160 | |||
Notes to Unaudited Condensed Combined Financial Statements | 161 |
F-1
Table of Contents
F-2
Table of Contents
F-3
Table of Contents
September 30, | December 31, | |||||||||||
2009 | 2008 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 9,534,278 | $ | 2,418,071 | $ | 1,206,246 | ||||||
Accounts receivable, net of allowance for bad debts of $200,856 and sales returns of $200,351 at September 30, 2009 and net of allowance for bad debts of $505,682 and sales returns of $200,351 in 2008 and net of allowance for bad debts of $489,695 and sales returns of $205,464 in 2007 | 21,640,162 | 10,550,011 | 9,508,735 | |||||||||
Inventories | 9,800,223 | 12,850,392 | 9,698,171 | |||||||||
Deferred tax assets | 4,102,137 | 4,617,636 | 5,362,054 | |||||||||
Prepaid expenses | 1,615,890 | 1,180,600 | 825,544 | |||||||||
Total current assets | 46,692,690 | 31,616,710 | 26,600,750 | |||||||||
Property, plant and equipment, net | 17,849,322 | 18,310,361 | 18,808,134 | |||||||||
Pre-publication costs | 4,199,927 | 3,838,138 | 2,685,338 | |||||||||
Author advances | 58,198 | 57,180 | 56,323 | |||||||||
Goodwill | 107,268,162 | 116,373,162 | 192,287,323 | |||||||||
Other intangible assets, net | 81,354,948 | 98,596,291 | 123,408,901 | |||||||||
Property held for sale | 157,500 | 1,577,700 | — | |||||||||
Other long-term assets | 91,228 | 108,016 | 5,291,534 | |||||||||
Total assets | $ | 257,671,975 | $ | 270,477,558 | $ | 369,138,303 | ||||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Notes payable — line of credit | $ | 15,000,000 | $ | 5,000,000 | $ | — | ||||||
Current portion of long-term debt | 1,280,000 | 1,280,000 | 1,280,000 | |||||||||
Accounts payable | 1,707,605 | 3,035,339 | 5,976,467 | |||||||||
Royalties payable | 1,305,198 | 1,431,859 | 1,433,421 | |||||||||
Accrued compensation | 3,241,607 | 1,613,278 | 2,234,239 | |||||||||
Income tax payable | — | — | 298,893 | |||||||||
Deferred revenue | 1,189,473 | 1,479,525 | 1,429,521 | |||||||||
Other accrued expenses | 3,767,625 | 2,519,674 | 4,196,101 | |||||||||
Total current liabilities | 27,491,508 | 16,359,675 | 16,848,642 | |||||||||
Long-term debt, less current portion | 150,426,490 | 153,787,018 | 176,401,960 | |||||||||
Co-development liability | 363,585 | 577,655 | 780,092 | |||||||||
Deferred revenue | 453,805 | 430,353 | — | |||||||||
Deferred tax liabilities | 9,419,604 | 15,166,488 | 29,436,235 | |||||||||
Deferred compensation | 116,416 | 182,254 | 269,020 | |||||||||
Building lease liability | 12,724,926 | 12,960,221 | 13,239,336 | |||||||||
Fair value of interest rate swap | 1,461,474 | 2,381,978 | 1,534,379 | |||||||||
Other | 359,789 | 427,930 | 548,632 | |||||||||
Total liabilities | 202,817,597 | 202,273,572 | 239,058,296 | |||||||||
Commitments and contingencies (Note N) | ||||||||||||
Members’ equity: | ||||||||||||
Member’s interest | 154,666,898 | 151,707,432 | 144,023,857 | |||||||||
Accumulated deficit | (99,812,520 | ) | (83,503,446 | ) | (13,943,850 | ) | ||||||
Total members’ equity | 54,854,378 | 68,203,986 | 130,080,007 | |||||||||
Total liabilities and members’ equity | $ | 257,671,975 | $ | 270,477,558 | $ | 369,138,303 | ||||||
F-4
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Consolidated Statements of Operations
Successor Period | Predecessor Period | |||||||||||||||||||||||||||||
Nine Months Ended | Year Ended | from January 29, 2007 | from January 1, 2007 | Predecessor Period | ||||||||||||||||||||||||||
September 30, | December 31, | (Inception) through | through | Year Ended | ||||||||||||||||||||||||||
2009 | 2008 | 2008 | December 31, 2007 | April 11, 2007 | December 31, 2006 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Sales | ||||||||||||||||||||||||||||||
Product sales | $ | 70,330,778 | $ | 73,646,033 | $ | 89,206,979 | $ | 71,266,614 | $ | 15,237,950 | $ | 92,881,082 | ||||||||||||||||||
Service revenues | 7,410,377 | 8,408,640 | 10,524,413 | 9,580,707 | 3,175,558 | 13,542,418 | ||||||||||||||||||||||||
Total sales | 77,741,155 | 82,054,673 | 99,731,392 | 80,847,321 | 18,413,508 | 106,423,500 | ||||||||||||||||||||||||
Cost and expenses | ||||||||||||||||||||||||||||||
Cost of product sales, excludingpre-publication, publishing rights, trademarks and developed technology amortization | 19,938,433 | 21,660,304 | 26,611,566 | 24,995,845 | 5,633,015 | 31,712,624 | ||||||||||||||||||||||||
Pre-publication, publishing rights, trademark and developed technology amortization | 13,512,505 | 12,940,850 | 17,295,599 | 12,842,070 | 3,511,795 | 11,335,271 | ||||||||||||||||||||||||
Cost of service revenues | 5,148,144 | 5,646,241 | 7,462,585 | 6,312,392 | 1,908,206 | 8,257,992 | ||||||||||||||||||||||||
Total cost of sales | 38,599,082 | 40,247,395 | 51,369,750 | 44,150,307 | 11,053,016 | 51,305,887 | ||||||||||||||||||||||||
Selling and administrative | 31,812,441 | 35,029,649 | 44,628,286 | 29,926,744 | 20,814,785 | 45,636,349 | ||||||||||||||||||||||||
Other intangible asset amortization | 4,880,751 | 6,484,575 | 8,649,892 | 7,228,665 | 310,918 | 1,013,098 | ||||||||||||||||||||||||
Acquired in-process research and development | — | — | — | 890,000 | — | — | ||||||||||||||||||||||||
Embezzlement and related expenses (Note A) | (194,921 | ) | 8,683,561 | 7,253,985 | 5,731,671 | 999,516 | 3,261,132 | |||||||||||||||||||||||
Goodwill impairment | 9,105,000 | — | 75,966,164 | — | — | — | ||||||||||||||||||||||||
Total cost and expenses | 84,202,353 | 90,445,180 | 187,868,077 | 87,927,387 | 33,178,235 | 101,216,466 | ||||||||||||||||||||||||
(Loss) income from operations | (6,461,198 | ) | (8,390,507 | ) | (88,136,685 | ) | (7,080,066 | ) | (14,764,727 | ) | 5,207,034 | |||||||||||||||||||
Interest and other expenses, net | (14,891,347 | ) | (13,987,128 | ) | (19,415,241 | ) | (14,689,090 | ) | (741,522 | ) | (1,364,117 | ) | ||||||||||||||||||
Gain from settlement with previous stockholders | — | 30,202,083 | 30,202,083 | — | — | — | ||||||||||||||||||||||||
Loss on extinguishment of debt | — | (5,632,544 | ) | (5,632,544 | ) | — | — | — | ||||||||||||||||||||||
(Loss) income from operations before taxes | (21,352,545 | ) | 2,191,904 | (82,982,387 | ) | (21,769,156 | ) | (15,506,249 | ) | 3,842,917 | ||||||||||||||||||||
Income tax (benefit) provision | (5,043,471 | ) | (10,773,591 | ) | (13,422,791 | ) | (7,838,647 | ) | (3,694,058 | ) | 3,403,242 | |||||||||||||||||||
Net (loss) income | $ | (16,309,074 | ) | $ | 12,965,495 | $ | (69,559,596 | ) | $ | (13,930,509 | ) | $ | (11,812,191 | ) | $ | 439,675 | ||||||||||||||
F-5
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Consolidated Statement of Stockholders’ Equity
Series A Convertible | Additional | |||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid in | Accumulated | |||||||||||||||||||||||||
Shares | Value | Shares | Par Value | Capital | Deficit | Total | ||||||||||||||||||||||
Predecessor Period | ||||||||||||||||||||||||||||
Balance at December 31, 2005 | 73,050,000 | $ | 73,005,093 | 2,720,718 | $ | 27,207 | $ | 2,693,511 | $ | (10,105,597 | ) | $ | 65,620,214 | |||||||||||||||
Beneficial conversion related to preferred stock | — | — | — | — | 3,016,000 | (3,016,000 | ) | — | ||||||||||||||||||||
Issuance of preferred stock | 11,650,000 | 11,650,000 | — | — | — | — | 11,650,000 | |||||||||||||||||||||
Stock-based compensation | — | — | — | — | 1,185,442 | — | 1,185,442 | |||||||||||||||||||||
Net income | — | — | — | — | — | 439,675 | 439,675 | |||||||||||||||||||||
Balance at December 31, 2006 | 84,700,000 | 84,655,093 | 2,720,718 | 27,207 | 6,894,953 | (12,681,922 | ) | 78,895,331 | ||||||||||||||||||||
Stock-based compensation | — | — | — | — | (68,967 | ) | — | (68,967 | ) | |||||||||||||||||||
Conversion of preferred stock to common stock | (84,700,000 | ) | (84,655,093 | ) | 84,700,000 | 84,700 | 84,570,393 | — | — | |||||||||||||||||||
Net loss | — | — | — | — | — | (11,812,191 | ) | (11,812,191 | ) | |||||||||||||||||||
Balance at April 11, 2007 | — | $ | — | 87,420,718 | $ | 111,907 | $ | 91,396,379 | $ | (24,494,113 | ) | $ | 67,014,173 | |||||||||||||||
F-6
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Consolidated Statements of Members’ Equity
Members’ | Accumulated | |||||||||||
Interest | Deficit | Total | ||||||||||
Successor Period | ||||||||||||
Balance at January 29, 2007 (inception): | ||||||||||||
Capital contribution by members | $ | 144,023,857 | $ | — | $ | 144,023,857 | ||||||
Distribution to members | — | (13,341 | ) | (13,341 | ) | |||||||
Net loss | — | (13,930,509 | ) | (13,930,509 | ) | |||||||
Balance at December 31, 2007 | 144,023,857 | (13,943,850 | ) | 130,080,007 | ||||||||
Capital contribution by members | 7,683,575 | — | 7,683,575 | |||||||||
Net loss | — | (69,559,596 | ) | (69,559,596 | ) | |||||||
Balance at December 31, 2008 | 151,707,432 | (83,503,446 | ) | 68,203,986 | ||||||||
Capital contribution by members | 2,959,466 | — | 2,959,466 | |||||||||
Net loss | — | (16,309,074 | ) | (16,309,074 | ) | |||||||
Balance at September 30, 2009 (Unaudited) | $ | 154,666,898 | $ | (99,812,520 | ) | $ | 54,854,378 | |||||
F-7
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Consolidated Statements of Cash Flows
Successor Period | Predecessor Period | |||||||||||||||||||||||||||||
from January 29, | from January 1, | |||||||||||||||||||||||||||||
Successor Period | Successor Year | 2007 | 2007 | Predecessor Year | ||||||||||||||||||||||||||
Nine Months Ended | Ended | (Inception) through | through | Ended | ||||||||||||||||||||||||||
September 30, | December 31, | December 31, | April 11, | December 31, | ||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2007 | 2006 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Operating activities: | ||||||||||||||||||||||||||||||
Net (loss) income | $ | (16,309,074 | ) | $ | 12,965,495 | $ | (69,559,596 | ) | $ | (13,930,509 | ) | $ | (11,812,191 | ) | $ | 439,675 | ||||||||||||||
Adjustments to reconcile net (loss) income to cash flows used in operating activities: | ||||||||||||||||||||||||||||||
Depreciation and amortization expense on property, plant and equipment | 1,216,856 | 1,096,319 | 1,473,177 | 986,651 | 300,778 | 678,447 | ||||||||||||||||||||||||
Amortization expense on pre-publication costs and intangible assets | 18,393,256 | 19,425,425 | 25,945,491 | 20,070,735 | 3,822,713 | 12,348,369 | ||||||||||||||||||||||||
Acquired in-process research and development | — | — | — | 890,000 | — | — | ||||||||||||||||||||||||
Inventorystep-up | — | — | — | 2,931,000 | — | — | ||||||||||||||||||||||||
Goodwill impairment | 9,105,000 | — | 75,966,164 | — | — | — | ||||||||||||||||||||||||
Gain from settlement with previous stockholders | — | (30,202,083 | ) | (30,202,083 | ) | — | — | — | ||||||||||||||||||||||
Gain from recovery of property held for sale | — | — | (1,577,700 | ) | — | — | — | |||||||||||||||||||||||
Loss on extinguishment of debt — unamortized debt issuance costs | — | 4,594,453 | 4,594,453 | — | — | — | ||||||||||||||||||||||||
Non-cash interest expense | 1,710,869 | 1,129,898 | 1,700,855 | 641,960 | — | — | ||||||||||||||||||||||||
Amortization of deferred financing costs | — | 604,114 | 604,114 | 679,333 | — | — | ||||||||||||||||||||||||
Loss (gain) on derivative instruments | (920,503 | ) | (129,724 | ) | 847,599 | 1,534,379 | — | — | ||||||||||||||||||||||
Disposal of assets | — | — | — | — | — | 108,305 | ||||||||||||||||||||||||
Stock-based compensation | — | — | (617,870 | ) | — | (68,967 | ) | 1,185,442 | ||||||||||||||||||||||
Deferred income taxes | (5,231,385 | ) | (6,271,361 | ) | (13,525,329 | ) | (8,364,667 | ) | (4,552,568 | ) | (4,243,540 | ) | ||||||||||||||||||
Changes in operating assets and liabilities, net of acquired businesses | ||||||||||||||||||||||||||||||
Accounts receivable | (11,090,151 | ) | (6,395,511 | ) | (1,041,276 | ) | 305,707 | (769,298 | ) | 255,683 | ||||||||||||||||||||
Inventories | 3,050,168 | (4,201,382 | ) | (3,152,221 | ) | (867,025 | ) | (499,290 | ) | (1,633,318 | ) | |||||||||||||||||||
Accounts payable | (1,327,734 | ) | (3,002,863 | ) | (2,941,128 | ) | (1,182,890 | ) | 3,856,415 | (524,264 | ) | |||||||||||||||||||
Royalties payable, net | (127,679 | ) | (698,190 | ) | (2,419 | ) | 650,609 | (674,865 | ) | 5,558 | ||||||||||||||||||||
Prepaid expenses | (435,290 | ) | (5,121,492 | ) | (355,056 | ) | 488,450 | 1,732,482 | (1,371,237 | ) | ||||||||||||||||||||
Performance share plan | — | — | — | (7,558,990 | ) | 35,595 | 2,150,345 | |||||||||||||||||||||||
Other accrued expenses | 2,876,280 | 91,946 | (2,264,508 | ) | (89,522 | ) | 4,678,327 | 2,200,210 | ||||||||||||||||||||||
Deferred revenue | (266,600 | ) | 335,346 | 480,353 | 861,200 | 153,530 | (386,485 | ) | ||||||||||||||||||||||
Other, net | 842,713 | (875,515 | ) | (453,768 | ) | (1,475,103 | ) | 40,133 | (665,335 | ) | ||||||||||||||||||||
Net cash provided by (used in) operating activities | 1,486,726 | (16,655,125 | ) | (14,080,748 | ) | (3,428,682 | ) | (3,757,206 | ) | 10,547,856 | ||||||||||||||||||||
Investing activities: | ||||||||||||||||||||||||||||||
Acquisition of businesses, less cash acquired | — | (112,000 | ) | (112,003 | ) | (303,235,675 | ) | — | (29,660,538 | ) | ||||||||||||||||||||
Pre-publication expenditures | (1,513,702 | ) | (1,893,964 | ) | (2,225,678 | ) | (2,726,476 | ) | (416,870 | ) | (1,639,341 | ) | ||||||||||||||||||
Property, plant and equipment additions | (755,817 | ) | (661,314 | ) | (975,404 | ) | (643,176 | ) | (683,534 | ) | (4,079,453 | ) | ||||||||||||||||||
Settlement proceeds from previous stockholders | — | 30,202,083 | 30,202,083 | — | — | — | ||||||||||||||||||||||||
Net cash (used in) provided by investing activities | (2,269,519 | ) | 27,534,805 | 26,888,998 | (306,605,327 | ) | (1,100,404 | ) | (35,379,332 | ) | ||||||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||||
Proceeds from capital contributions | 2,959,466 | 719,659 | 683,575 | 140,108,857 | — | — | ||||||||||||||||||||||||
Proceeds from the issuance of long-term debt | — | — | — | 172,104,739 | — | — | ||||||||||||||||||||||||
Payment of long-term debt | (5,060,466 | ) | (23,960,000 | ) | (24,280,000 | ) | (960,000 | ) | — | — | ||||||||||||||||||||
Proceeds from the issuance of preferred stock | — | — | — | — | — | 11,650,000 | ||||||||||||||||||||||||
Borrowings under revolving credit facility | 10,000,000 | 5,000,000 | 5,000,000 | 4,500,000 | 3,600,000 | 7,000,000 | ||||||||||||||||||||||||
Payment of revolving credit facility | — | — | — | (4,500,000 | ) | — | (2,000,000 | ) | ||||||||||||||||||||||
Borrowings from affiliates | — | 7,000,000 | 7,000,000 | — | — | — | ||||||||||||||||||||||||
Distribution to members | — | — | — | (13,341 | ) | — | — | |||||||||||||||||||||||
Net cash provided by (used in) financing activities | 7,899,000 | (11,240,341 | ) | (11,596,425 | ) | 311,240,255 | 3,600,000 | 16,650,000 | ||||||||||||||||||||||
F-8
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Consolidated Statements of Cash Flows — (Continued)
Successor Period | Successor Year | Successor Period | Predecessor Period | Predecessor Year | ||||||||||||||||||||||||||
Nine Months Ended | Ended | from January 29, 2007 | from January 1, 2007 | Ended | ||||||||||||||||||||||||||
September 30, | December 31, | (Inception) through | through | December 31, | ||||||||||||||||||||||||||
2009 | 2008 | 2008 | December 31, 2007 | April 11, 2007 | 2006 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | 7,116,207 | (360,661 | ) | 1,211,825 | 1,206,246 | (1,257,610 | ) | (8,181,476 | ) | |||||||||||||||||||||
Cash and cash equivalents at the beginning of the period | 2,418,071 | 1,206,246 | 1,206,246 | — | 1,641,831 | 9,823,307 | ||||||||||||||||||||||||
Cash and cash equivalents at period end | $ | 9,534,278 | $ | 845,585 | $ | 2,418,071 | $ | 1,206,246 | $ | 384,221 | $ | 1,641,831 | ||||||||||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||||||||||||||||
Cash paid for (refund of) income taxes | $ | 245,704 | $ | 770,017 | $ | 74,168 | $ | (337,205 | ) | $ | 277,854 | $ | 8,427,128 | |||||||||||||||||
Cash paid for interest | 12,590,067 | 11,875,472 | 16,214,908 | 11,982,828 | 798,885 | 1,300,394 | ||||||||||||||||||||||||
Supplemental disclosures of noncash investing activities: | ||||||||||||||||||||||||||||||
Conversion of unsecured notes payable — affiliates | — | — | 7,000,000 | — | — | — | ||||||||||||||||||||||||
Assets received in settlement — property held for sale | — | — | 1,577,700 | — | — | — | ||||||||||||||||||||||||
Supplemental disclosure of noncash financing activities: | ||||||||||||||||||||||||||||||
Rollover in capital contribution | — | — | — | 3,915,000 | — | — | ||||||||||||||||||||||||
Non-cash interest expense | 1,710,869 | 1,129,898 | 1,700,855 | 641,960 | — | — | ||||||||||||||||||||||||
Beneficial conversion related to preferred stock | — | — | — | — | — | 3,016,000 | ||||||||||||||||||||||||
Assets acquired underbuild-to-suit lease | — | — | — | — | — | 8,261,367 |
F-9
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements
Information as of September 30, 2009 and for the nine months ended September 30, 2009 and 2008 is unaudited.
F-10
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-11
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Year/Period | Amount | |||
2004 | $ | 1,912,795 | ||
2005 | 290,135 | |||
2006 | 3,261,132 | |||
January 1, 2007 — April 11, 2007 | 999,516 | |||
Total — Predecessor | 6,463,578 | |||
April 12, 2007 — December 31, 2007 | 5,731,671 | |||
2008 | 1,800,735 | |||
Total — Successor | 7,532,406 | |||
Total Embezzlement Loss | $ | 13,995,984 | ||
F-12
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-13
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-14
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Estimated Useful Life | ||
Building | 35 years | |
Land improvements | 19 years | |
Machinery and equipment | 8 - 15 years | |
Furniture and fixtures | 8 years | |
Computer equipment and software | 2 - 5 years | |
Leasehold improvements | Lesser of useful life or lease term |
F-15
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-16
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-17
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-18
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-19
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-20
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
• | Capitalizing on a growing market and the need for accountability. | |
• | Increasing program penetration by expanding sales from current customers. | |
• | Expanding geographic footprint in rural areas. | |
• | Exploring acquisition opportunities in a fragmented market. |
F-21
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-22
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Current assets | $ | 30,259,364 | ||||||
Property, plant and equipment | 19,151,609 | |||||||
Other long-term assets | 234,660 | |||||||
Goodwill | 192,287,323 | |||||||
Other identified intangible assets | 143,380,000 | |||||||
Current liabilities | (23,891,415 | ) | ||||||
Long-term deferred tax liabilities | (39,807,632 | ) | ||||||
Other liabilities | (15,353,233 | ) | ||||||
In-process research and development | 890,000 | |||||||
Purchase price | $ | 307,150,676 | ||||||
Estimated | ||||||||
Fair Value | Useful Life | |||||||
Publishing rights | $ | 90,300,000 | 11 years | |||||
Developed technology | 6,300,000 | 6 years | ||||||
Trademarks | 15,580,000 | 16 years | ||||||
Reseller networks | 12,300,000 | 11 years | ||||||
Customer relationships | 13,700,000 | 6 – 11 years | ||||||
Noncompetes | 2,600,000 | 3 years | ||||||
Contracts | 2,100,000 | 4 years | ||||||
Conference attendee relationships | 500,000 | 8 years | ||||||
Total other identified intangibles | $ | 143,380,000 | ||||||
F-23
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
• | IntelliTools, combined into CLT, would be able to provide a more complete offering to special needs students, generating additional sales. | |
• | IntelliTools, combined into CLT, would be able to achieve significant economies of scale and greater market penetration by utilizing a single direct selling, marketing, reseller network, and development team. | |
• | By combining the back office administration and systems, the Company would be able to reduce its costs. |
Current assets | $ | 1,184,032 | ||
Property, plant and equipment | 88,234 | |||
Other long-term assets | 22,087 | |||
Goodwill | 5,616,638 | |||
Other identified intangible assets | 4,130,000 | |||
Current liabilities | (1,700,162 | ) | ||
Purchase price | $ | 9,340,829 | ||
F-24
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Estimated Useful | ||||||
Asset | Fair Value | Life | ||||
Developed technology | $ | 1,770,000 | 4 years | |||
Trademarks and patents | 530,000 | Indefinite | ||||
Noncompete | 100,000 | 3 years | ||||
Customer relationships | 1,730,000 | 9 years | ||||
Total other identified intangibles | $ | 4,130,000 | ||||
Estimated Useful | ||||||
Asset | Fair Value | Life | ||||
Pre-paid expenses | $ | 120,000 | ||||
Copyrights | 15,588,677 | 10 years | ||||
Trademarks | 4,300,000 | 14 years | ||||
Purchase price | $ | 20,008,677 | ||||
F-25
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
September 30, 2009 | 2008 | 2007 | ||||||||||
Land, buildings and land improvements | $ | 13,360,000 | $ | 13,360,000 | $ | 13,360,000 | ||||||
Furniture and fixtures | 288,439 | 287,410 | 287,410 | |||||||||
Machinery and equipment | 3,844,813 | 3,795,769 | 3,746,557 | |||||||||
Computer equipment and software | 3,857,201 | 3,173,847 | 2,261,116 | |||||||||
Leasehold improvements | 174,282 | 151,892 | 138,700 | |||||||||
Total | 21,524,735 | 20,768,918 | 19,793,783 | |||||||||
Less accumulated depreciation and amortization | 3,675,413 | 2,458,557 | 985,649 | |||||||||
Total | $ | 17,849,322 | $ | 18,310,361 | $ | 18,808,134 | ||||||
F-26
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Balance at | Balance at | Balance at | ||||||||||||||||||||||||||
December 31, | Impairment | December 31, | Impairment | September 30, | ||||||||||||||||||||||||
2007 | Additions | Charge | 2008 | Additions | Charge | 2009 | ||||||||||||||||||||||
Goodwill | $ | 192,287,323 | $ | 52,003 | $ | (75,966,164 | ) | $ | 116,373,162 | $ | — | $ | (9,105,000 | ) | $ | 107,268,162 | ||||||||||||
Other intangible assets — Gross Book Value | ||||||||||||||||||||||||||||
Publishing rights | $ | 90,300,000 | $ | — | $ | — | $ | 90,300,000 | $ | — | — | $ | 90,300,000 | |||||||||||||||
Trademark | 15,580,000 | — | — | 15,580,000 | — | — | 15,580,000 | |||||||||||||||||||||
Customer relationships | 13,700,000 | 39,000 | — | 13,739,000 | — | — | 13,739,000 | |||||||||||||||||||||
Contracts | 2,100,000 | — | — | 2,100,000 | — | — | 2,100,000 | |||||||||||||||||||||
Developed technology | 6,300,000 | 21,000 | — | 6,321,000 | — | — | 6,321,000 | |||||||||||||||||||||
Reseller network | 12,300,000 | — | — | 12,300,000 | — | — | 12,300,000 | |||||||||||||||||||||
Conference attendees | 500,000 | — | — | 500,000 | — | — | 500,000 | |||||||||||||||||||||
Non-compete | 2,600,000 | — | — | 2,600,000 | — | — | 2,600,000 | |||||||||||||||||||||
Total other intangibles — Gross Book Value | 143,380,000 | 60,000 | — | 143,440,000 | — | — | 143,440,000 | |||||||||||||||||||||
Other intangible assets — Accumulated Amortization | ||||||||||||||||||||||||||||
Publishing rights | $ | (10,473,136 | ) | $ | (13,565,924 | ) | $ | — | $ | (24,039,060 | ) | $ | (10,461,374 | ) | — | $ | (34,500,434 | ) | ||||||||||
Trademark | (1,130,290 | ) | (1,329,483 | ) | — | (2,459,773 | ) | (1,005,157 | ) | — | (3,464,930 | ) | ||||||||||||||||
Customer relationships | (3,370,681 | ) | (3,804,208 | ) | — | (7,174,889 | ) | (2,150,937 | ) | — | (9,325,826 | ) | ||||||||||||||||
Contracts | (439,838 | ) | (1,046,938 | ) | — | (1,486,776 | ) | (416,112 | ) | — | (1,902,888 | ) | ||||||||||||||||
Developed technology | (1,146,348 | ) | (1,327,312 | ) | — | (2,473,660 | ) | (894,062 | ) | — | 3,367,722 | ) | ||||||||||||||||
Reseller network | (2,636,246 | ) | (2,790,152 | ) | — | (5,426,398 | ) | (1,599,248 | ) | — | (7,025,646 | ) | ||||||||||||||||
Conference attendees | (151,041 | ) | (141,927 | ) | — | (292,968 | ) | (64,453 | ) | — | (357,421 | ) | ||||||||||||||||
Non-compete | (623,519 | ) | (866,666 | ) | — | (1,490,185 | ) | (650,000 | ) | — | (2,140,185 | ) | ||||||||||||||||
Total other intangibles — Accumulated Amortization | (19,971,099 | ) | (24,872,610 | ) | — | (44,843,709 | ) | (17,241,343 | ) | — | (62,085,082 | ) | ||||||||||||||||
Other intangible assets, net | $ | 123,408,901 | $ | (24,812,610 | ) | $ | — | $ | 98,596,291 | $ | (17,241,343 | ) | — | $ | 81,354,948 | |||||||||||||
F-27
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Publishing | Customer | Developed | Reseller | Conference | Non- | |||||||||||||||||||||||||||||||
Rights | Trademark | Relationships | Contracts | Technology | Network | Attendees | Compete | Total | ||||||||||||||||||||||||||||
2009 | $ | 13,948,499 | $ | 1,340,210 | $ | 2,867,917 | $ | 554,816 | $ | 1,192,082 | $ | 2,132,331 | $ | 85,938 | $ | 866,666 | $ | 22,988,459 | ||||||||||||||||||
2010 | 13,605,543 | 1,322,641 | 1,816,022 | 58,408 | 1,051,145 | 1,594,904 | 52,083 | 243,149 | 19,743,895 | |||||||||||||||||||||||||||
2011 | 11,846,195 | 1,281,816 | 932,545 | — | 883,058 | 1,135,671 | 32,553 | — | 16,111,838 | |||||||||||||||||||||||||||
2012 | 9,267,221 | 1,201,701 | 518,496 | — | 721,055 | 789,384 | 18,229 | — | 12,516,086 | |||||||||||||||||||||||||||
2013 | 6,704,342 | 1,126,527 | 192,241 | — | — | 537,427 | 10,417 | — | 8,570,954 | |||||||||||||||||||||||||||
Thereafter | 10,889,140 | 6,847,332 | 236,890 | — | — | 683,885 | 7,812 | — | 18,665,059 | |||||||||||||||||||||||||||
$ | 66,260,940 | $ | 13,120,227 | $ | 6,564,111 | $ | 613,224 | $ | 3,847,340 | $ | 6,873,602 | $ | 207,032 | $ | 1,109,815 | $ | 98,596,291 | |||||||||||||||||||
F-28
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
As of September 30, | Years Ended December 31, | |||||||||||
2009 | 2008 | 2007 | ||||||||||
$128,000,000 of floating rate senior debt due April 11, 2013, interest payable quarterly | $ | 97,699,534 | $ | 102,760,000 | $ | 127,040,000 | ||||||
$65,597,068 of 14.25% senior unsecured notes due April 11, 2014, interest payable quarterly | 54,006,956 | 52,307,018 | 50,641,960 | |||||||||
151,706,490 | 155,067,018 | 177,681,960 | ||||||||||
Less amounts due in one year | 1,280,000 | 1,280,000 | 1,280,000 | |||||||||
Total long-term debt | $ | 150,426,490 | $ | 153,787,018 | $ | 176,401,960 | ||||||
F-29
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
2009 | $ | 1,280,000 | ||
2010 | 1,280,000 | |||
2011 | 1,280,000 | |||
2012 | 1,280,000 | |||
2013 | 97,640,000 | |||
Thereafter | 65,597,068 | |||
Total debt repayment | $ | 168,357,068 | ||
F-30
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-31
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-32
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Successor | |||||||||||||||||
Period from | Predecessor | Predecessor | |||||||||||||||
Successor | January 29, | Period from | Period | ||||||||||||||
Year Ended | 2007 to | January 1, | Year Ended | ||||||||||||||
December 31, | December 31, | 2007 to April 11, | December 31, | ||||||||||||||
2008 | 2007 | 2007 | 2006 | ||||||||||||||
Current: | |||||||||||||||||
Federal | $ | — | $ | 18,000 | $ | 501,534 | $ | 6,576,980 | |||||||||
State and other | 102,538 | 508,020 | 356,976 | 1,069,804 | |||||||||||||
102,538 | 526,020 | 858,510 | 7,646,784 | ||||||||||||||
Deferred: | |||||||||||||||||
Federal | (11,950,931 | ) | (7,109,967 | ) | (4,309,520 | ) | (3,932,925 | ) | |||||||||
State and other | (1,574,398 | ) | (1,254,700 | ) | (243,048 | ) | (310,615 | ) | |||||||||
(13,525,329 | ) | (8,364,667 | ) | (4,552,568 | ) | (4,243,540 | ) | ||||||||||
Income tax benefit | $ | (13,422,791 | ) | $ | (7,838,647 | ) | $ | (3,694,058 | ) | $ | 3,403,242 | ||||||
As of December 31, | ||||||||
2008 | 2007 | |||||||
Deferred tax assets: | ||||||||
Net operating and capital losses carryforwards | $ | 9,403,405 | $ | 2,045,856 | ||||
Deferred compensation | 112,901 | 147,607 | ||||||
Depreciation and amortization | 189,790 | 31,379 | ||||||
Intangible and fixed assets | 12,983,035 | 14,703,398 | ||||||
Embezzlement loss | 1,894,249 | 4,878,100 | ||||||
Deferred financing costs | 2,437,092 | — | ||||||
Other, net | 4,866,150 | 4,345,903 | ||||||
Reserves | 932,634 | 748,770 | ||||||
Total deferred tax assets | 32,819,256 | 26,901,013 | ||||||
Less: valuation allowance | (2,857,867 | ) | (1,032,806 | ) | ||||
Net deferred tax assets | 29,961,389 | 25,868,207 | ||||||
Deferred tax liabilities: | ||||||||
Intangible and fixed assets | (39,440,064 | ) | (49,453,624 | ) | ||||
Depreciation and amortization | (1,070,177 | ) | (488,764 | ) | ||||
Total deferred tax liabilities | (40,510,241 | ) | (49,942,388 | ) | ||||
Net deferred tax liabilities | $ | (10,548,852 | ) | $ | (24,074,181 | ) | ||
F-33
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
As of December 31, | ||||||||
2008 | 2007 | |||||||
Current deferred tax assets | $ | 4,617,636 | $ | 5,362,054 | ||||
Noncurrent deferred tax liabilities | (15,166,488 | ) | (29,436,235 | ) | ||||
Net deferred tax liabilities | $ | (10,548,852 | ) | $ | (24,074,181 | ) | ||
F-34
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Successor | Predecessor | |||||||||||||||
Period from | Period from | |||||||||||||||
Successor | January 29, | January 1, | Predecessor | |||||||||||||
Year Ended | 2007 to | 2007 to | Year Ended | |||||||||||||
December 31, | December 31, | April 11, | December 31, | |||||||||||||
2008 | 2007 | 2007 | 2006 | |||||||||||||
(Loss) income before income taxes | $ | (82,982,387 | ) | $ | (21,769,156 | ) | $ | (15,506,249 | ) | $ | 3,842,917 | |||||
Statutory federal tax at 35% | (29,043,835 | ) | (7,623,874 | ) | (5,427,187 | ) | 1,345,021 | |||||||||
State taxes | (1,057,701 | ) | (485,342 | ) | (427,679 | ) | 356,253 | |||||||||
Goodwill impairment | 26,588,157 | — | — | — | ||||||||||||
Purchase price adjustment | (10,244,219 | ) | — | — | — | |||||||||||
Seller transaction expenses | — | — | 1,674,173 | — | ||||||||||||
Change in valuation allowance | 121,502 | — | 372,598 | 1,628,096 | ||||||||||||
Other | 213,305 | 270,569 | 114,038 | 73,872 | ||||||||||||
Income tax (benefit) expense | $ | (13,422,791 | ) | $ | (7,838,647 | ) | $ | (3,694,058 | ) | $ | 3,403,242 | |||||
F-35
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-36
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-37
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-38
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
• | Level 1 — Quoted prices for identical instruments in active markets. | |
• | Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable. |
• | Level 3 — Valuations derived from valuation techniques in which significant value drivers are unobservable. |
F-39
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Significant Other Observable Inputs (Level 2) | ||||||||||||
September 30, 2009 | December 31, | December 31, | ||||||||||
Description | (unaudited) | 2008 | 2007 | |||||||||
Interest rate swap | $ | 1,461,474 | $ | 2,381,978 | $ | 1,534,379 |
Year Ended | ||||
December 31, | ||||
2006 | ||||
Risk-free interest rate | 4.8%–4.87% | |||
Expected dividend yield | 0% | |||
Volatility factor | 55.43%–56.06% | |||
Expected lives | 6.25 years | |||
Weighted-average fair value of options granted | $0.63 |
F-40
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Number of | Weighted-Average | |||||||
Shares | Exercise Price | |||||||
Outstanding at December 31, 2005 | 3,927,465 | $ | 2.31 | |||||
Granted | 2,325,000 | 2.00 | ||||||
Exercised | — | — | ||||||
Canceled | (391,715 | ) | (2.15 | ) | ||||
Outstanding at December 31, 2006 | 5,860,750 | 2.20 | ||||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Canceled | (5,860,750 | ) | (2.20 | ) | ||||
Outstanding at April 11, 2007 | — | — | ||||||
F-41
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
2009 | $ | 1,006,108 | ||
2010 | 1,026,150 | |||
2011 | 1,037,173 | |||
2012 | 1,092,289 | |||
2013 | 1,092,289 | |||
Thereafter | 3,265,175 | |||
Total minimum lease payments | $ | 8,519,184 | ||
2009 | $ | 1,327,833 | ||
2010 | 803,964 | |||
2011 | 649,356 | |||
2012 | 649,356 | |||
2013 | 270,565 | |||
Total minimum lease payments | $ | 3,701,074 | ||
2009 | $ | 291,929 | ||
2010 | 154,608 | |||
Total minimum lease payments | $ | 446,537 | ||
F-42
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-43
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-44
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Incurred in | ||||||||||||||||||||||||
Successor | ||||||||||||||||||||||||
Period from | ||||||||||||||||||||||||
Incurred in Nine | Incurred in Nine | Incurred in | January 29, 2007 | |||||||||||||||||||||
Total Incurred | Months Ended | Months Ended | Year Ended | through | ||||||||||||||||||||
Total Amount | as of September 30, | September 30, | September 30, | December 31, | December 31, | |||||||||||||||||||
Incurred | 2009 | 2009 | 2008 | 2008 | 2007 | |||||||||||||||||||
One-time termination benefits | $ | 314,643 | $ | 314,643 | $ | 15,944 | $ | 227,140 | $ | 238,394 | $ | 60,305 | ||||||||||||
Other associated costs | 347,617 | $ | 347,617 | 40,489 | 238,785 | 307,128 | — | |||||||||||||||||
$ | 662,260 | $ | 662,260 | $ | 56,433 | $ | 465,925 | $ | 545,522 | $ | 60,305 | |||||||||||||
Period Ended | Year Ended | Year Ended | ||||||||||
September 30, | December 31, | December 31, | ||||||||||
2009 | 2008 | 2007 | ||||||||||
Beginning Balance | $ | 48,766 | $ | 60,305 | $ | — | ||||||
Accrued Expenses: | ||||||||||||
One-time termination benefits | 15,944 | 238,394 | 60,305 | |||||||||
Facility-related expenses | 40,489 | 307,128 | — | |||||||||
Cash Payments: | ||||||||||||
One-time termination benefits | — | (249,933 | ) | — | ||||||||
Facility-related expenses | (40,489 | ) | (307,128 | ) | — | |||||||
Ending Balance | $ | 64,710 | $ | 48,766 | $ | 60,305 | ||||||
F-45
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-46
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Cambium | ||||||||||||||||
Published | Learning | |||||||||||||||
Products | Technologies | Other | Consolidated | |||||||||||||
Predecessor Year ended December 31, 2006 | ||||||||||||||||
Product sales | $ | 72,318,414 | $ | 20,562,668 | $ | — | $ | 92,881,082 | ||||||||
Service revenues | 13,118,762 | 423,656 | — | 13,542,418 | ||||||||||||
Net sales | 85,437,176 | 20,986,324 | — | 106,423,500 | ||||||||||||
Cost of product sales | 34,239,481 | 8,551,581 | 256,833 | 43,047,895 | ||||||||||||
Cost of service revenues | 8,035,051 | 222,941 | — | 8,257,992 | ||||||||||||
Total cost of sales | 42,274,532 | 8,774,522 | 256,833 | 51,305,887 | ||||||||||||
Depreciation and amortization | 737,687 | 928,119 | 25,739 | 1,691,545 | ||||||||||||
Segment net (loss) income | $ | 5,584,693 | $ | 1,567,749 | $ | (6,712,767 | ) | $ | 439,675 | |||||||
Predecessor Period from January 1, 2007 through April 11, 2007 | ||||||||||||||||
Product sales | $ | 9,268,384 | $ | 5,969,566 | $ | — | $ | 15,237,950 | ||||||||
Service revenues | 3,060,303 | 115,255 | — | 3,175,558 | ||||||||||||
Net sales | 12,328,687 | 6,084,821 | — | 18,413,508 | ||||||||||||
Cost of product sales | 6,882,789 | 2,201,078 | 60,943 | 9,144,810 | ||||||||||||
Cost of service revenues | 1,843,444 | 64,762 | — | 1,908,206 | ||||||||||||
Total cost of sales | 8,726,233 | 2,265,840 | 60,943 | 11,053,016 | ||||||||||||
Depreciation and amortization | 301,946 | 301,516 | 8,233 | 611,695 | ||||||||||||
Segment net (loss) income | $ | (3,930,690 | ) | $ | 1,055,977 | $ | (8,937,478 | ) | $ | (11,812,191 | ) | |||||
Successor Period, from January 29, 2007 (inception) through December 31, 2007 | ||||||||||||||||
Product sales | $ | 57,323,278 | $ | 13,943,336 | $ | — | $ | 71,266,614 | ||||||||
Service revenues | 9,338,963 | 241,744 | — | 9,580,707 | ||||||||||||
Net sales | 66,662,241 | 14,185,080 | — | 80,847,321 | ||||||||||||
Cost of product sales | 32,282,787 | 5,344,693 | 210,435 | 37,837,915 | ||||||||||||
Cost of service revenues | 6,193,541 | 118,851 | — | 6,312,392 | ||||||||||||
Total cost of sales | 38,476,328 | 5,463,544 | 210,435 | 44,150,307 | ||||||||||||
Depreciation and amortization | 4,027,619 | 3,543,809 | 636,547 | 8,207,974 | ||||||||||||
Segment net (loss) income | $ | 2,767,450 | $ | (615,788 | ) | $ | (16,082,171 | ) | $ | (13,930,509 | ) | |||||
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CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
Cambium | ||||||||||||||||
Published | Learning | |||||||||||||||
Products | Technologies | Other | Consolidated | |||||||||||||
Year ended December 31, 2008 | ||||||||||||||||
Product sales | $ | 67,919,015 | $ | 21,287,964 | $ | — | $ | 89,206,979 | ||||||||
Service revenues | 10,141,382 | 383,031 | — | 10,524,413 | ||||||||||||
Net sales | 78,060,397 | 21,670,995 | — | 99,731,392 | ||||||||||||
Cost of product sales | 35,739,624 | 7,428,121 | 739,420 | 43,907,165 | ||||||||||||
Cost of service revenues | 7,210,023 | 252,562 | — | 7,462,585 | ||||||||||||
Total cost of sales | 42,949,647 | 7,680,683 | 739,420 | 51,369,750 | ||||||||||||
Depreciation and amortization | 5,286,929 | 3,941,664 | 894,475 | 10,123,069 | ||||||||||||
Segment net (loss) income | $ | (77,353,677 | ) | $ | 1,380,890 | $ | 6,413,191 | $ | (69,559,596 | ) | ||||||
Nine months ended September 30, 2008 | ||||||||||||||||
Product sales | $ | 56,930,716 | $ | 16,715,317 | $ | — | $ | 73,646,033 | ||||||||
Service revenues | 8,188,978 | 219,662 | — | 8,408,640 | ||||||||||||
Net sales | 65,119,694 | 16,934,979 | — | 82,054,673 | ||||||||||||
Cost of product sales | 28,542,532 | 5,512,594 | 546,028 | 34,601,154 | ||||||||||||
Cost of service revenues | 5,488,587 | 157,654 | — | 5,646,241 | ||||||||||||
Total cost of sales | 34,031,119 | 5,670,248 | 546,028 | 40,247,395 | ||||||||||||
Depreciation and amortization | 3,955,135 | 2,955,214 | 670,545 | 7,580,894 | ||||||||||||
Segment net (loss) income | $ | 779,824 | $ | 1,331,200 | $ | 10,854,471 | $ | 12,965,495 | ||||||||
Nine months ended September 30, 2009 | ||||||||||||||||
Product sales | $ | 55,044,546 | $ | 15,286,232 | $ | — | $ | 70,330,778 | ||||||||
Service revenues | 7,192,679 | 217,698 | — | 7,410,377 | ||||||||||||
Net sales | 62,237,225 | 15,503,930 | — | 77,741,155 | ||||||||||||
Cost of product sales | 28,665,897 | 4,235,860 | 549,181 | 33,450,938 | ||||||||||||
Cost of service revenues | 5,026,104 | 122,040 | — | 5,148,144 | ||||||||||||
Total cost of sales | 33,692,001 | 4,357,900 | 549,181 | 38,599,082 | ||||||||||||
Depreciation and amortization | 3,069,739 | 2,354,320 | 673,548 | 6,097,607 | ||||||||||||
Segment net (loss) income | $ | (3,091,089 | ) | $ | 3,209,616 | $ | (16,427,601 | ) | $ | (16,309,074 | ) | |||||
Cambium | ||||||||||||||||
Published | Learning | |||||||||||||||
Products | Technologies | Other | Consolidated | |||||||||||||
Year ended December 31,2007 | $ | 118,926,608 | $ | 21,259,653 | $ | 2,030,774 | $ | 142,217,035 | ||||||||
Year ended December 31, 2008 | 99,459,669 | 16,282,217 | 1,164,765 | 116,906,652 | ||||||||||||
Nine months ended September 30, 2009 | 85,274,984 | 13,357,006 | 572,278 | 99,204,268 |
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CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-49
Table of Contents
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial Statements — (Continued)
F-50
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Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(In thousands, except | ||||||||
per share data) | ||||||||
Net sales | $ | 79,584 | $ | 76,418 | ||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | (26,298 | ) | (27,837 | ) | ||||
Gross profit | 53,286 | 48,581 | ||||||
Research and development expense | (3,436 | ) | (3,743 | ) | ||||
Sales and marketing expense | (22,615 | ) | (25,410 | ) | ||||
General and administrative expense | (18,379 | ) | (24,286 | ) | ||||
Depreciation and amortization expense | (14,605 | ) | (16,083 | ) | ||||
Goodwill impairment | (27,175 | ) | — | |||||
Lease termination costs | — | (11,673 | ) | |||||
Loss before interest, other income (expense) and income taxes | (32,924 | ) | (32,614 | ) | ||||
Net interest income (expense): | ||||||||
Interest income | 70 | 712 | ||||||
Interest expense | (611 | ) | (231 | ) | ||||
Net interest income (expense) | (541 | ) | 481 | |||||
Other income (expense), net | 954 | 790 | ||||||
Loss before income taxes | (32,511 | ) | (31,343 | ) | ||||
Income tax benefit (expense) | 81 | — | ||||||
Net loss | $ | (32,430 | ) | $ | (31,343 | ) | ||
Net loss per common share: | ||||||||
Basic net loss per common share | $ | (1.09 | ) | $ | (1.05 | ) | ||
Diluted net loss per common share | $ | (1.09 | ) | $ | (1.05 | ) | ||
Average number of common shares and equivalents outstanding: | ||||||||
Basic | 29,874 | 29,871 | ||||||
Diluted | 29,874 | 29,871 |
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September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(In thousands, except | ||||||||
per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 85,325 | $ | 67,302 | ||||
Accounts receivable, net | 14,789 | 7,371 | ||||||
Income tax receivable | 4,684 | 19,782 | ||||||
Inventory | 12,568 | 15,196 | ||||||
Other current assets | 7,451 | 33,826 | ||||||
Total current assets | 124,817 | 143,477 | ||||||
Property, equipment and software at cost | 19,708 | 16,543 | ||||||
Accumulated depreciation and amortization | (12,498 | ) | (9,718 | ) | ||||
Net property, equipment and software | 7,210 | 6,825 | ||||||
Goodwill | 72,542 | 99,717 | ||||||
Acquired curriculum intangibles, net | 30,437 | 38,594 | ||||||
Other intangible assets, net | 4,503 | 5,218 | ||||||
Developed curriculum, net | 8,994 | 8,903 | ||||||
Other assets | 1,536 | 1,363 | ||||||
Total assets | $ | 250,039 | $ | 304,097 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of capital lease obligations | $ | 152 | $ | 149 | ||||
Accounts payable | 1,773 | 1,962 | ||||||
Accrued expenses | 14,699 | 40,866 | ||||||
Deferred revenue, less long-term portion | 32,216 | 27,917 | ||||||
Total current liabilities | 48,840 | 70,894 | ||||||
Long-term liabilities: | ||||||||
Capital lease obligations, less current maturities | 63 | 96 | ||||||
Other liabilities | 21,029 | 20,348 | ||||||
Total long-term liabilities | 21,092 | 20,444 | ||||||
Commitments and contingencies (See Note 15) | ||||||||
Shareholders’ equity: | ||||||||
Common stock ($.001 par value, 50,000 shares authorized, 30,550 shares issued and 29,874 shares outstanding at September 30, 2009, and December 31, 2008) | 30 | 30 | ||||||
Capital surplus | 357,823 | 357,741 | ||||||
Accumulated earnings (deficit) | (161,657 | ) | (129,227 | ) | ||||
Treasury stock, at cost (676 shares at September 30, 2009 and at December 31, 2008) | (16,836 | ) | (16,836 | ) | ||||
Other comprehensive income (loss): | ||||||||
Pension and postretirement plans, net of tax benefit of $392 and $713 at September 30, 2009 and December 31, 2008, respectively | 788 | 1,093 | ||||||
Net unrealized gain (loss) on securities, net of tax expense of $39 at September 30, 2009 and December 31, 2008 | (41 | ) | (42 | ) | ||||
Accumulated other comprehensive income | 747 | 1,051 | ||||||
Total shareholders’ equity | 180,107 | 212,759 | ||||||
Total liabilities and shareholders’ equity | $ | 250,039 | $ | 304,097 | ||||
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Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Operating activities: | ||||||||
Net loss | $ | (32,430 | ) | $ | (31,343 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Goodwill impairment | 27,175 | — | ||||||
Depreciation and amortization | 14,605 | 16,083 | ||||||
Non-cash lease termination costs | — | 673 | ||||||
Stock-based compensation | 220 | 688 | ||||||
Loss (gain) on sale of available for sale securities | 1 | (136 | ) | |||||
Deferred income taxes | 60 | — | ||||||
Non-cash tax benefit | (321 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (7,418 | ) | (11,329 | ) | ||||
Income tax receivable | 15,098 | 1,445 | ||||||
Inventory | 2,628 | (1,668 | ) | |||||
Other current assets | 14,707 | 4,430 | ||||||
Other assets | (173 | ) | (11 | ) | ||||
Accounts payable | (189 | ) | (360 | ) | ||||
Accrued expenses | (26,167 | ) | (10,004 | ) | ||||
Deferred revenue | 6,010 | 7,593 | ||||||
Other long-term liabilities | (657 | ) | (1,838 | ) | ||||
Other, net | (16 | ) | 53 | |||||
Net cash provided by (used in) operating activities | 13,133 | (25,724 | ) | |||||
Investing activities: | ||||||||
Expenditures for property, equipment, developed curriculum, and software | (6,112 | ) | (5,904 | ) | ||||
Purchases of equity investments available for sale | (10 | ) | (675 | ) | ||||
Proceeds from sales of equity investments available for sale | 11,139 | 1,756 | ||||||
Net cash provided by (used in) investing activities | 5,017 | (4,823 | ) | |||||
Financing activities: | ||||||||
Principal payments under capital lease obligations | (127 | ) | (208 | ) | ||||
Net cash used in financing activities | (127 | ) | (208 | ) | ||||
Increase (decrease) in cash and cash equivalents | 18,023 | (30,755 | ) | |||||
Cash and cash equivalents, beginning of period | 67,302 | 53,868 | ||||||
Cash and cash equivalents, end of period | $ | 85,325 | $ | 23,113 | ||||
Non-cash financing and investing activities: | ||||||||
Acquisition of equipment through capital leases | $ | 97 | $ | — |
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Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common Stock | Capital | Accumulated | Comprehensive | |||||||||||||||||||||
Issued | Treasury | Surplus | Deficit | Income(Loss) | Total | |||||||||||||||||||
(Dollars and shares in thousands) | ||||||||||||||||||||||||
Balance, at the end of fiscal 2008 (Common stock, 30,550 shares issued; treasury stock, 676 shares) | $ | 30 | $ | (16,836 | ) | $ | 357,741 | $ | (129,227 | ) | $ | 1,051 | $ | 212,759 | ||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net loss | (32,430 | ) | (32,430 | ) | ||||||||||||||||||||
Pension and postretirement plans | 16 | 16 | ||||||||||||||||||||||
Unrealized gain on securities | 1 | 1 | ||||||||||||||||||||||
Write-off of tax benefit on pension settlement | (321 | ) | (321 | ) | ||||||||||||||||||||
Total comprehensive loss | (32,734 | ) | ||||||||||||||||||||||
Stock-based compensation expense | 82 | 82 | ||||||||||||||||||||||
Balance, at June 30, 2009 (Common stock, 30,550 shares issued; treasury stock, 676 shares) | $ | 30 | $ | (16,836 | ) | $ | 357,823 | $ | (161,657 | ) | $ | 747 | $ | 180,107 | ||||||||||
F-54
Table of Contents
Note 1 — | Basis of Presentation |
Note 2 — | Planned Business Combination |
F-55
Table of Contents
Note 3 — | Accounts Receivable |
Note 4 — | Stock-Based Compensation |
Note 5 — | Net Earnings (Loss) per Common Share |
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
(Shares in thousands) | ||||||||
Basic | 29,874 | 29,871 | ||||||
Dilutive effect of awards | — | — | ||||||
Diluted | 29,874 | 29,871 | ||||||
Note 6 — | Fair Value Measurements |
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Table of Contents
Note 7 — | Comprehensive Income (Loss) |
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Net loss | (32,430 | ) | (31,343 | ) | ||||
Other comprehensive income (loss): | ||||||||
Pension and postretirement plans | 16 | (20 | ) | |||||
Unrealized gain (loss) on securities | 1 | (211 | ) | |||||
Write-off of tax benefit on pension settlement | (321 | ) | — | |||||
Comprehensive loss | $ | (32,734 | ) | $ | (31,574 | ) | ||
Note 8 — | Impairment |
(Dollars in thousands) | ||||
Balance as of December 31, 2008 | 99,717 | |||
Goodwill impairment | (27,175 | ) | ||
Balance as of September 30, 2009 | $ | 72,542 | ||
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Table of Contents
Note 9 — | Other Current Assets |
As of | ||||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Available for sale securities | $ | 2,024 | $ | 13,137 | ||||
Short-term deferred tax asset | 1,439 | 1,994 | ||||||
Deferred costs | 2,846 | 1,907 | ||||||
Insurance receivable | — | 15,000 | ||||||
Other | 1,142 | 1,788 | ||||||
Total | $ | 7,451 | $ | 33,826 | ||||
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Table of Contents
Note 10 — | Accrued Expenses |
As of | ||||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Salaries, bonuses and benefits | $ | 7,897 | $ | 6,900 | ||||
Corporate transition costs | 1,388 | 1,879 | ||||||
Pension and post-retirement medical benefits | 1,263 | 6,675 | ||||||
Deferred compensation | 629 | 3,233 | ||||||
Legal contingency accrual | 55 | 20,000 | ||||||
Transaction costs | 660 | — | ||||||
Other | 2,807 | 2,179 | ||||||
Total | $ | 14,699 | $ | 40,866 | ||||
Note 11 — | Other Liabilities |
As of | ||||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Pension and post-retirement medical benefits, long-term portion | $ | 9,595 | $ | 10,239 | ||||
Long-term deferred tax liability | 2,143 | 2,638 | ||||||
Long-term deferred revenue | 3,301 | 1,590 | ||||||
Long-term deferred compensation | 1,111 | 2,765 | ||||||
Long-term income tax payable | 1,248 | 640 | ||||||
Other | 3,631 | 2,476 | ||||||
Total | $ | 21,029 | $ | 20,348 | ||||
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Note 12 — | Pension and Other Postretirement Benefit Plans |
Nine Months Ended | ||||||||||||||||
U.S. Defined Benefit | Other Postretirement | |||||||||||||||
Pension Plan | Benefits | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Service cost | $ | — | $ | — | $ | — | $ | — | ||||||||
Interest cost | 517 | 932 | 4 | 4 | ||||||||||||
Amortization of prior service cost | — | — | — | — | ||||||||||||
Recognized net actuarial (gain) loss | — | 54 | (22 | ) | (74 | ) | ||||||||||
Net pension and other postretirement benefit cost (income) | $ | 517 | $ | 986 | $ | (18 | ) | $ | (70 | ) | ||||||
Note 13 — | Corporate Transition |
(Dollars in thousands) | ||||
Balance as of December 31, 2008 | $ | 2,556 | ||
Accrual changes | (342 | ) | ||
Payments made | (493 | ) | ||
Balance as of September 30, 2009 | $ | 1,721 | ||
Current portion | $ | 1,388 | ||
Long-term portion | $ | 333 | ||
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Table of Contents
Note 14 — | Uncertain Tax Positions |
Balance as of December 31, 2008 | $ | 14,616 | ||
Increases for changes in estimates during the current period | 722 | |||
Decreases related to settlements | (136 | ) | ||
Balance as of September 30, 2009 | $ | 15,202 | ||
Note 15 — | Contingent Liabilities |
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Note 16 — | Subsequent Events |
F-62
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F-63
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F-64
Table of Contents
2008 | 2007 | 2006 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Net sales | $ | 98,531 | $ | 109,612 | $ | 115,051 | ||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | (35,939 | ) | (36,192 | ) | (37,417 | ) | ||||||
Gross profit | 62,592 | 73,420 | 77,634 | |||||||||
Research and development expense | (5,302 | ) | (4,532 | ) | (5,198 | ) | ||||||
Sales and marketing expense | (33,734 | ) | (29,587 | ) | (27,614 | ) | ||||||
General and administrative expense | (30,660 | ) | (53,280 | ) | (65,081 | ) | ||||||
Depreciation and amortization expense | (21,358 | ) | (23,190 | ) | (23,865 | ) | ||||||
Goodwill impairment | (43,141 | ) | (67,232 | ) | (42,496 | ) | ||||||
Lease termination costs | (11,673 | ) | — | — | ||||||||
Loss from continuing operations before interest, other income (expense) and income taxes | (83,276 | ) | (104,401 | ) | (86,620 | ) | ||||||
Net interest income (expense): | ||||||||||||
Interest income | 1,485 | 3,682 | 1,080 | |||||||||
Interest expense | (510 | ) | (3,347 | ) | (28,544 | ) | ||||||
Net interest income (expense) | 975 | 335 | (27,464 | ) | ||||||||
Other income (expense), net | (363 | ) | 4,408 | — | ||||||||
Loss from continuing operations before income taxes | (82,664 | ) | (99,658 | ) | (114,084 | ) | ||||||
Income tax benefit | 1,160 | 12,396 | 64,063 | |||||||||
Loss from continuing operations | (81,504 | ) | (87,262 | ) | (50,021 | ) | ||||||
Earnings from discontinued operations (less applicable income tax expense of $0, $1,491, and $23,776, respectively) | — | 5,460 | 44,926 | |||||||||
Gain on sale of discontinued operations (less applicable income tax expense of $0, $11,160, and $66,321, respectively) | — | 46,572 | 347,708 | |||||||||
Net earnings (loss) | $ | (81,504 | ) | $ | (35,230 | ) | $ | 342,613 | ||||
Net earnings (loss) per common share: | ||||||||||||
Basic: | ||||||||||||
Loss from continuing operations | $ | (2.73 | ) | $ | (2.92 | ) | $ | (1.68 | ) | |||
Earnings from discontinued operations | — | 0.18 | 1.51 | |||||||||
Gain on sale of discontinued operations | — | 1.56 | 11.66 | |||||||||
Basic net earnings (loss) per common share | $ | (2.73 | ) | $ | (1.18 | ) | $ | 11.49 | ||||
Diluted: | ||||||||||||
Loss from continuing operations | $ | (2.73 | ) | $ | (2.92 | ) | $ | (1.68 | ) | |||
Earnings from discontinued operations | — | 0.18 | 1.51 | |||||||||
Gain on sale of discontinued operations | — | 1.56 | 11.66 | |||||||||
Diluted net earnings (loss) per common share | $ | (2.73 | ) | $ | (1.18 | ) | $ | 11.49 | ||||
Average number of common shares and equivalents outstanding: | ||||||||||||
Basic | 29,871 | 29,858 | 29,816 | |||||||||
Diluted | 29,871 | 29,858 | 29,816 |
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Table of Contents
2008 | 2007 | |||||||
(In thousands, except | ||||||||
per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 67,302 | $ | 53,868 | ||||
Accounts receivable, net | 7,371 | 9,266 | ||||||
Income tax receivable | 19,782 | 65,600 | ||||||
Inventory | 15,196 | 16,005 | ||||||
Other current assets | 33,826 | 16,489 | ||||||
Total current assets | 143,477 | 161,228 | ||||||
Property, equipment, and software at cost: | ||||||||
Buildings and improvements | 1,220 | 10,666 | ||||||
Machinery and equipment | 4,707 | 5,975 | ||||||
Software | 10,616 | 7,284 | ||||||
Total property, equipment, and software at cost | 16,543 | 23,925 | ||||||
Accumulated depreciation and amortization | (9,718 | ) | (8,584 | ) | ||||
Net property, equipment, and software | 6,825 | 15,341 | ||||||
Goodwill | 99,717 | 142,858 | ||||||
Acquired curriculum intangibles, net | 38,594 | 51,206 | ||||||
Other intangible assets, net | 5,218 | 6,411 | ||||||
Developed curriculum, net | 8,903 | 9,333 | ||||||
Other assets | 1,363 | 16,350 | ||||||
Total assets | $ | 304,097 | $ | 402,727 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of capital lease obligations | $ | 149 | $ | 789 | ||||
Accounts payable | 1,962 | 4,403 | ||||||
Accrued expenses | 40,866 | 25,315 | ||||||
Deferred revenue | 27,917 | 19,822 | ||||||
Total current liabilities | 70,894 | 50,329 | ||||||
Long-term liabilities: | ||||||||
Capital lease obligations, less current maturities | 96 | 810 | ||||||
Other liabilities | 20,348 | 61,258 | ||||||
Total long-term liabilities | 20,444 | 62,068 | ||||||
Commitments and contingencies (See Note 18) | ||||||||
Shareholders’ equity: | ||||||||
Common stock ($.001 par value, 50,000 shares authorized, 30,550 shares issued and 29,874 shares outstanding at the end of fiscal 2008, and 30,552 shares issued and 29,883 shares outstanding at the end of fiscal 2007) | 30 | 30 | ||||||
Capital surplus | 357,741 | 356,683 | ||||||
Accumulated earnings (deficit) | (129,227 | ) | (47,723 | ) | ||||
Treasury stock, at cost (676 shares at the end of fiscal 2008 and 669 shares at the end of fiscal 2007) | (16,836 | ) | (16,742 | ) | ||||
Other comprehensive income (loss): | ||||||||
Pension and postretirement plans, net of tax benefit of $713 in each year | 1,093 | (2,088 | ) | |||||
Net unrealized gain (loss) on securities, net of tax expense of $39 in each year | (42 | ) | 170 | |||||
Accumulated other comprehensive income (loss) | 1,051 | (1,918 | ) | |||||
Total shareholders’ equity | 212,759 | 290,330 | ||||||
Total liabilities and shareholders’ equity | $ | 304,097 | $ | 402,727 | ||||
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2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Operating activities: | ||||||||||||
Net earnings (loss) | $ | (81,504 | ) | $ | (35,230 | ) | $ | 342,613 | ||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Goodwill and long-lived asset impairment | 43,141 | 67,232 | 42,496 | |||||||||
Gain on sale of discontinued operations, net of tax | — | (46,572 | ) | (347,708 | ) | |||||||
Earnings from discontinued operations, net of tax | — | (5,460 | ) | (44,926 | ) | |||||||
Depreciation and amortization | 21,358 | 23,190 | 23,865 | |||||||||
Amortization and write-off of deferred financing costs | — | 2,286 | 9,003 | |||||||||
Stock-based compensation | 878 | 137 | 4,309 | |||||||||
Excess tax benefit realized related to stock-based compensation | — | — | (92 | ) | ||||||||
Gain on sale of available for sale securities | (106 | ) | (508 | ) | (405 | ) | ||||||
Deferred income taxes | (1,176 | ) | (12,671 | ) | (64,105 | ) | ||||||
Non-cash lease termination costs | 673 | — | — | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable, net | 1,895 | 6,067 | (3,286 | ) | ||||||||
Tax receivable | 45,818 | (55,742 | ) | 9,009 | ||||||||
Inventory | 809 | (3,404 | ) | 371 | ||||||||
Other current assets | 6,866 | 52,009 | 2,890 | |||||||||
Other assets | (13 | ) | (1,205 | ) | (14,970 | ) | ||||||
Accounts payable | (2,441 | ) | 661 | (2,295 | ) | |||||||
Accrued expenses | (9,038 | ) | (61,113 | ) | (3,623 | ) | ||||||
Deferred revenue | 8,367 | 3,385 | 3,685 | |||||||||
Other long-term liabilities | (4,353 | ) | (15,217 | ) | 32,455 | |||||||
Other, net | 50 | (4 | ) | (133 | ) | |||||||
Net cash provided by (used in) operating activities of continuing operations | 31,224 | (82,159 | ) | (10,847 | ) | |||||||
Investing activities: | ||||||||||||
Expenditures for property, equipment, curriculum development costs, and software | (7,912 | ) | (8,755 | ) | (14,408 | ) | ||||||
Purchases of equity investments available for sale | (11,786 | ) | (7,777 | ) | (6,664 | ) | ||||||
Proceeds from sales of equity investments available for sale | 2,172 | 8,843 | 11,521 | |||||||||
Proceeds from (expenditures associated with) sale of discontinued operations, net | — | 186,342 | 501,231 | |||||||||
Net cash provided by (used in) investing activities of continuing operations | (17,526 | ) | 178,653 | 491,680 | ||||||||
Financing activities: | ||||||||||||
Proceeds from debt | — | — | 561,059 | |||||||||
Repayment of debt | — | (58,225 | ) | (1,015,798 | ) | |||||||
Principal payments under capital lease obligations | (264 | ) | (840 | ) | (746 | ) | ||||||
Debt issuance costs | — | (302 | ) | (8,379 | ) | |||||||
Proceeds from exercise of stock options, net | — | — | 589 | |||||||||
Excess tax benefit realized related to stock-based compensation | — | — | 92 | |||||||||
Net cash used in financing activities of continuing operations | (264 | ) | (59,367 | ) | (463,183 | ) | ||||||
Effect of exchange rate changes on cash | — | — | (7,148 | ) | ||||||||
Increase in cash and cash equivalents of continuing operations | 13,434 | 37,127 | 10,502 | |||||||||
Net cash used in discontinued operations: | ||||||||||||
Net cash provided by (used in) operating activities | — | (19,891 | ) | 66,716 | ||||||||
Net cash used in investing activities | — | (2,540 | ) | (47,510 | ) | |||||||
Net cash used in financing activities | — | (730 | ) | (20,763 | ) | |||||||
Net cash used in discontinued operations | — | (23,161 | ) | (1,557 | ) | |||||||
Increase in cash and cash equivalents | 13,434 | 13,966 | 8,945 | |||||||||
Cash and cash equivalents, beginning of year | 53,868 | 39,902 | 30,957 | |||||||||
Cash and cash equivalents, end of year | $ | 67,302 | $ | 53,868 | $ | 39,902 | ||||||
Non-cash financing and investing activities: | ||||||||||||
Acquisition of equipment through capital leases | $ | — | $ | — | $ | 1,937 |
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Unearned | Accumulated | |||||||||||||||||||||||||||
Compensation | Other | |||||||||||||||||||||||||||
Common Stock | Capital | on Restricted | Accumulated | Comprehensive | ||||||||||||||||||||||||
Issued | Treasury | Surplus | stock | Deficit | Income(Loss) | Total | ||||||||||||||||||||||
(Dollars and shares in thousands) | ||||||||||||||||||||||||||||
Balance, at the end of fiscal 2005 (Common stock, 30,563 shares issued; treasury stock, 653 shares) | $ | 30 | $ | (16,550 | ) | $ | 354,879 | $ | (3,122 | ) | $ | (375,986 | ) | $ | (7,698 | ) | $ | (48,447 | ) | |||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net earnings | 342,613 | 342,613 | ||||||||||||||||||||||||||
Foreign currency translation adjustments (net of tax expense of $2,739) | 14,292 | 14,292 | ||||||||||||||||||||||||||
Pension and postretirement plans (net of tax expense of $7,059) | (6,163 | ) | (6,163 | ) | ||||||||||||||||||||||||
Unrealized gain on securities | 21 | 21 | ||||||||||||||||||||||||||
Total comprehensive income (loss) | 350,763 | |||||||||||||||||||||||||||
Adoption of SFAS 158 | (193 | ) | (193 | ) | ||||||||||||||||||||||||
Restricted stock grant, 2 shares | (60 | ) | 60 | — | ||||||||||||||||||||||||
Restricted stock amortization, net of cancellations, 29 shares | 1,259 | 1,259 | ||||||||||||||||||||||||||
Stock-based compensation expense | 3,050 | 3,050 | ||||||||||||||||||||||||||
Stock options exercised, net 29 shares | 589 | 589 | ||||||||||||||||||||||||||
Reclassification of unearned compensation on restricted stock | (3,062 | ) | 3,062 | — | ||||||||||||||||||||||||
Restricted stock utilized to pay taxes | (27 | ) | (27 | ) | ||||||||||||||||||||||||
Balance, at the end of fiscal 2006 (Common stock, 30,565 shares issued; treasury stock, 655 shares) | $ | 30 | $ | (16,577 | ) | $ | 356,655 | $ | — | $ | (33,373 | ) | $ | 259 | $ | 306,994 | ||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net earnings | (35,230 | ) | (35,230 | ) | ||||||||||||||||||||||||
Foreign currency translation adjustments | (1,313 | ) | (1,313 | ) | ||||||||||||||||||||||||
Pension and postretirement plans | 1,029 | 1,029 | ||||||||||||||||||||||||||
Unrealized loss on securities | (501 | ) | (501 | ) | ||||||||||||||||||||||||
Total comprehensive income (loss) | (36,015 | ) | ||||||||||||||||||||||||||
Adoption of FIN 48 | 20,880 | 20,880 | ||||||||||||||||||||||||||
Write off foreign currency translation adjustments upon sale of PQIL | (24,676 | ) | (24,676 | ) | ||||||||||||||||||||||||
Write off accumulated other comprehensive income (loss) related to PQIL pension plan | 23,284 | 23,284 | ||||||||||||||||||||||||||
Restricted stock amortization, net of cancellations, 13 shares | 369 | 369 | ||||||||||||||||||||||||||
Stock-based compensation expense | (506 | ) | (506 | ) | ||||||||||||||||||||||||
Restricted stock utilized to pay taxes | — | |||||||||||||||||||||||||||
(165 | ) | 165 | — | |||||||||||||||||||||||||
Balance, at the end of fiscal 2007 (Common stock, 30,552 shares issued; treasury stock, 669 shares) | $ | 30 | $ | (16,742 | ) | $ | 356,683 | $ | — | $ | (47,723 | ) | $ | (1,918 | ) | $ | 290,330 | |||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net earnings | (81,504 | ) | (81,504 | ) | ||||||||||||||||||||||||
Pension and postretirement plans | 3,181 | 3,181 | ||||||||||||||||||||||||||
Unrealized loss on securities | (212 | ) | (212 | ) | ||||||||||||||||||||||||
Total comprehensive income (loss) | (78,535 | ) | ||||||||||||||||||||||||||
Restricted stock amortization | 110 | 110 | ||||||||||||||||||||||||||
Stock-based compensation expense | 854 | 854 | ||||||||||||||||||||||||||
Restricted stock utilized to pay taxes | (94 | ) | 94 | — | ||||||||||||||||||||||||
Balance, at the end of fiscal 2008 (Common stock, 30,550 shares issued; treasury stock, 676 shares) | $ | 30 | $ | (16,836 | ) | $ | 357,741 | $ | — | $ | (129,227 | ) | $ | 1,051 | $ | 212,759 | ||||||||||||
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2007 as | 2007 in | 2006 as | 2006 in | |||||||||||||||||||||
Originally | Current Year | Originally | Current Year | |||||||||||||||||||||
Filed | Reclassifications | Presentation | Filed | Reclassifications | Presentation | |||||||||||||||||||
Cost of sales | $ | (55,720 | ) | $ | 19,528 | $ | (36,192 | ) | $ | (57,279 | ) | $ | 19,862 | $ | (37,417 | ) | ||||||||
Gross profit | 53,892 | 19,528 | 73,420 | 57,772 | 19,862 | 77,634 | ||||||||||||||||||
Selling and administrative expense | (86,529 | ) | 86,529 | — | (96,698 | ) | 96,698 | — | ||||||||||||||||
Sales and marketing expense | — | (29,587 | ) | (29,587 | ) | — | (27,614 | ) | (27,614 | ) | ||||||||||||||
General and administrative expense | — | (53,280 | ) | (53,280 | ) | — | (65,081 | ) | (65,081 | ) | ||||||||||||||
Depreciation and amortization expense | — | (23,190 | ) | (23,190 | ) | — | (23,865 | ) | (23,865 | ) |
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2008 | 2007 | 2006 | ||||||||||
(Shares in thousands) | ||||||||||||
Basic | 29,871 | 29,858 | 29,816 | |||||||||
Dilutive effect of awards | — | — | — | |||||||||
Diluted | 29,871 | 29,858 | 29,816 | |||||||||
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2008 | ||||||||||||
VED | Corporate | Total | ||||||||||
Net sales | $ | 98,531 | $ | — | $ | 98,531 | ||||||
Loss from continuing operations before interest, other income (expense) and income taxes | $ | (56,569 | ) | $ | (26,707 | ) | $ | (83,276 | ) | |||
Capital expenditures | $ | 7,912 | $ | — | $ | 7,912 | ||||||
Depreciation and amortization | $ | 21,248 | $ | 110 | $ | 21,358 | ||||||
Total assets | $ | 304,097 | $ | — | $ | 304,097 |
2007 | ||||||||||||
VED | Corporate | Total | ||||||||||
Net sales | $ | 109,612 | $ | — | $ | 109,612 | ||||||
Earnings (loss) from continuing operations before interest and income taxes | $ | (69,192 | ) | $ | (35,209 | ) | $ | (104,401 | ) | |||
Capital expenditures | $ | 8,670 | $ | 85 | $ | 8,755 | ||||||
Depreciation and amortization | $ | 22,110 | $ | 1,080 | $ | 23,190 | ||||||
Total assets | $ | 283,091 | $ | 119,636 | $ | 402,727 |
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2006 | ||||||||||||
VED | Corporate | Total | ||||||||||
Net sales | $ | 115,051 | $ | — | $ | 115,051 | ||||||
Earnings (loss) from continuing operations before interest and income taxes | $ | (39,315 | ) | $ | (47,305 | ) | $ | (86,620 | ) | |||
Capital expenditures | $ | 5,860 | $ | 8,548 | $ | 14,408 | ||||||
Depreciation and amortization | $ | 22,777 | $ | 1,088 | $ | 23,865 | ||||||
Total assets(1) | $ | 322,131 | $ | 150,085 | $ | 472,216 | ||||||
(1) | Total assets includes assets from continuing operations only. |
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Income from continuing operations | $ | (1,160 | ) | $ | (12,396 | ) | $ | (64,063 | ) | |||
Income from discontinued operations | — | 1,491 | 23,776 | |||||||||
Gain on sale of discontinued operations | — | 11,160 | 66,321 | |||||||||
Shareholders’ equity, for minimum pension liability | — | — | 7,059 | |||||||||
Shareholders’ equity, for currency translation adjustment on unremitted foreign earnings | — | — | 2,739 | |||||||||
Goodwill | — | — | (54 | ) | ||||||||
Long-lived intangibles | — | — | (413 | ) | ||||||||
$ | (1,160 | ) | $ | 255 | $ | 35,365 | ||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Current income tax expense (benefit): | ||||||||||||
United States federal | $ | (222 | ) | $ | — | $ | — | |||||
State and local | 238 | 275 | 42 | |||||||||
Current income tax expense | 16 | 275 | 42 | |||||||||
Deferred income tax benefit | ||||||||||||
United States federal | (832 | ) | (12,183 | ) | (62,268 | ) | ||||||
State and local | (344 | ) | (488 | ) | (1,837 | ) | ||||||
Deferred income tax benefit | (1,176 | ) | (12,671 | ) | (64,105 | ) | ||||||
Income tax benefit | $ | (1,160 | ) | $ | (12,396 | ) | $ | (64,063 | ) | |||
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2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Deferred income tax benefit, exclusive of item listed below: | $ | (1,176 | ) | $ | (3,692 | ) | $ | (45,829 | ) | |||
Benefits of gain from sale and discontinued operations allocated to continuing operations | — | (8,979 | ) | (18,276 | ) | |||||||
Deferred income tax benefit | $ | (1,176 | ) | $ | (12,671 | ) | $ | (64,105 | ) | |||
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Statutory federal income tax rate | $ | (28,932 | ) | $ | (34,880 | ) | $ | (39,930 | ) | |||
Increase (reduction) in taxes resulting from: | ||||||||||||
State income taxes, net of federal benefit | (56 | ) | (214 | ) | (1,795 | ) | ||||||
Change of intent for investment basis difference | — | — | (37,525 | ) | ||||||||
Non-deductible goodwill | 15,099 | 23,531 | 14,874 | |||||||||
Changes in valuation allowance | 13,486 | — | — | |||||||||
Other | (757 | ) | (833 | ) | 313 | |||||||
Income tax benefit | $ | (1,160 | ) | $ | (12,396 | ) | $ | (64,063 | ) | |||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Deferred tax assets are attributable to: | ||||||||
Net operating loss carryforwards | $ | 13,191 | $ | 822 | ||||
Tax credit carryforwards | 8,675 | 10,176 | ||||||
Deferred compensation & pension benefits | 8,300 | 10,154 | ||||||
Legal contingency accrual, less insurance receivable | 1,750 | 1,750 | ||||||
Property and equipment | 197 | 202 | ||||||
Other | 3,258 | 5,661 | ||||||
Total gross deferred tax assets | 35,371 | 28,765 | ||||||
Valuation allowance | (20,513 | ) | (11,154 | ) | ||||
Net deferred tax assets | 14,858 | 17,611 | ||||||
Deferred tax liabilities are attributable to: | ||||||||
Curriculum costs | (13,057 | ) | (17,320 | ) | ||||
Intangibles | (2,075 | ) | (2,247 | ) | ||||
Other liabilities | (370 | ) | 68 | |||||
Total gross deferred tax liabilities | (15,502 | ) | (19,499 | ) | ||||
Net deferred tax asset (liability) | $ | (644 | ) | $ | (1,888 | ) | ||
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2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Short-term deferred tax asset | $ | 1,994 | $ | 2,566 | ||||
Long-term deferred tax liability | (2,638 | ) | (4,454 | ) | ||||
Net deferred tax asset (liability) | $ | (644 | ) | $ | (1,888 | ) | ||
Amount as of Year | Expire or Start Expiring at | |||||||
Ended 2008 | the end of: | |||||||
(Dollars in thousands) | ||||||||
U.S. net operating loss(1) | $ | 37,337 | 2028 | |||||
State net operating loss carryforward (net): | ||||||||
State tax net operating losses | 349 | 2012-2028 | ||||||
Tax credits: | ||||||||
Foreign tax credit | 1,378 | 2011-2015 | ||||||
Minimum tax credit | 6,549 | Carry forward indefinitely | ||||||
Research and development tax credit | 748 | 2014-2021 | ||||||
Total tax credits | 8,675 | |||||||
(1) | Not subject to any annual limitation. |
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Balance, December 31, 2006 | $ | 18,940 | ||
Increases for tax positions taken during the current period | 1,381 | |||
Decreases relating to settlements | (623 | ) | ||
Decreases relating to dispositions | (4,909 | ) | ||
Balance, December 29, 2007 | $ | 14,789 | ||
Increases for tax positions taken during the current period | — | |||
Decreases relating to settlements | (173 | ) | ||
Balance, December 31, 2008 | $ | 14,616 | ||
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Fiscal Years Ended | ||||||||
December 29, | December 30, | |||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Net sales by business segment: | ||||||||
ProQuest Information and Learning | $ | 26,062 | $ | 259,103 | ||||
ProQuest Business Solutions | — | 172,813 | ||||||
Net sales from discontinued operations | 26,062 | 431,916 | ||||||
Earnings (loss) before interest and income taxes: | ||||||||
ProQuest Information and Learning | 7,798 | 37,591 | ||||||
ProQuest Business Solutions | — | 51,533 | ||||||
Earnings from discontinued operations before interest and income taxes | 7,798 | 89,124 | ||||||
Interest expense, net | (847 | ) | (20,422 | ) | ||||
Income tax expense | (1,491 | ) | (23,776 | ) | ||||
Earnings from discontinued operations, net of taxes | $ | 5,460 | $ | 44,926 | ||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Sale price | $ | 195,249 | $ | 513,986 | ||||
Net assets, related liabilities, and selling costs(1) | (137,517 | ) | (99,957 | ) | ||||
Gain on sale | 57,732 | 414,029 | ||||||
Income tax expense | (11,160 | ) | (66,321 | ) | ||||
Gain on sale of discontinued operations, net of tax | $ | 46,572 | $ | 347,708 | ||||
(1) | Net assets sold in fiscal 2007 and 2006 include goodwill of $68.0 million and $52.2 million, respectively. |
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(Dollars in thousands) | ||||
Balance as of December 30, 2006 | $ | 210,090 | ||
Goodwill impairment | (67,232 | ) | ||
Balance as of December 29, 2007 | $ | 142,858 | ||
Goodwill impairment | (43,141 | ) | ||
Balance as of December 31, 2008 | $ | 99,717 | ||
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Balance as of December 31, 2008 | ||||||||||||
Accumulated | ||||||||||||
Gross | Amortization | Net | ||||||||||
(Dollars in thousands) | ||||||||||||
Acquired curriculum | $ | 98,410 | $ | (59,816 | ) | $ | 38,594 | |||||
Developed curriculum | 14,243 | (5,340 | ) | 8,903 | ||||||||
Customer relationships | 5,130 | (2,160 | ) | 2,970 | ||||||||
Trademark | 3,860 | (1,636 | ) | 2,224 | ||||||||
Non-compete agreements | 381 | (357 | ) | 24 | ||||||||
Total intangibles, net | $ | 122,024 | $ | (69,309 | ) | $ | 52,715 | |||||
Balance as of December 29, 2007 | ||||||||||||
Accumulated | ||||||||||||
Gross | Amortization | Net | ||||||||||
Acquired curriculum | $ | 98,410 | $ | (47,204 | ) | $ | 51,206 | |||||
Developed curriculum | 15,288 | (5,955 | ) | 9,333 | ||||||||
Customer relationships | 5,130 | (1,614 | ) | 3,516 | ||||||||
Trademark | 3,860 | (1,224 | ) | 2,636 | ||||||||
Non-compete agreements | 3,517 | (3,258 | ) | 259 | ||||||||
Total intangibles, net | $ | 126,205 | $ | (59,255 | ) | $ | 66,950 | |||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Short-term deferred tax asset | $ | 1,994 | $ | 2,566 | ||||
Deferred costs | 1,907 | 1,434 | ||||||
Available for sale securities | 13,137 | 3,629 | ||||||
Insurance receivable | 15,000 | 1,217 | ||||||
Other | 1,788 | 7,643 | ||||||
Total | $ | 33,826 | $ | 16,489 | ||||
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2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Insurance receivable | $ | — | $ | 15,000 | ||||
Other | 1,363 | 1,350 | ||||||
Total | $ | 1,363 | $ | 16,350 | ||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Salaries, bonuses and benefits | $ | 6,900 | $ | 8,540 | ||||
Pension and post-retirement medical benefits | 6,675 | 2,101 | ||||||
Deferred compensation | 3,233 | 1,590 | ||||||
Corporate transition costs | 1,879 | 2,466 | ||||||
Legal contingency accrual | 20,000 | 5,400 | ||||||
Other | 2,179 | 5,218 | ||||||
Total | $ | 40,866 | $ | 25,315 | ||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Pension and post-retirement medical benefits, long-term portion | $ | 10,239 | $ | 18,957 | ||||
Long-term deferred tax liability | 2,638 | 4,454 | ||||||
Long-term income tax payable | 640 | 777 | ||||||
Legal contingency accrual | — | 20,000 | ||||||
Long-term deferred compensation | 2,765 | 5,713 | ||||||
Deferred rent | 128 | 7,639 | ||||||
Long-term deferred revenue | 1,590 | 1,317 | ||||||
Other | 2,348 | 2,401 | ||||||
Total | $ | 20,348 | $ | 61,258 | ||||
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Capital | Operating | |||||||
Leases | Leases | |||||||
(Dollars in thousands) | ||||||||
2009 | $ | 159 | $ | 1,272 | ||||
2010 | 98 | 1,110 | ||||||
2011 | — | 320 | ||||||
2012 | — | 333 | ||||||
2013 | — | 258 | ||||||
Subsequent to 2013 | — | — | ||||||
Total minimum lease payments | 257 | $ | 3,293 | |||||
Less: Amount representing interest | (12 | ) | ||||||
Present value of net minimum lease payments | 245 | |||||||
Less: current portion | (149 | ) | ||||||
Obligations under capital leases, less current portion | $ | 96 | ||||||
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• | the Lenders agreed not to exercise remedies available to them resulting from the Company’s defaults under its Credit Agreements and to temporarily waive the specified existing and continuing defaults |
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during the period commencing on the date of default and expiring on November 30, 2006 unless the date was extended to January 31, 2007 if the Company achieved certain pre-determined milestones, |
• | the Credit Agreements were amended to provide that the covenants, events of default and other provisions were substantially the same among those agreements, | |
• | the Credit Agreements were amended to provide that the financial covenants contained in the Credit Agreements were replaced by monthly EBITDA and capital expenditures covenants, | |
• | the swingline facility contained in the 2005 Revolving Credit Agreement’s was cancelled, | |
• | the existing amounts outstanding under the 2005 Revolving Credit Agreement which were repaid as of the effective date of the Waiver Agreement could not be re-borrowed, | |
• | the revolving commitment under the 2005 Revolving Credit Agreement was capped at $32.8 million, | |
• | a new superpriority credit facility was established in an amount up to $56 million in the aggregate, so long as the Company was in compliance with the underlying terms and conditions of the Waiver Agreement, | |
• | the Company was required to grant a security interest in substantially all its assets and to provide guarantees from all its domestic subsidiaries with respect to the Credit Agreements and the superpriority credit facility, | |
• | borrowings under the superpriority credit facility would be at either LIBOR plus 3.5% or the Base Rate plus 2.0% which was on average approximately 175 basis points higher than under the then existing Credit Agreements, and | |
• | the Company would pay various fees, including a waiver fee applicable to the 2002 Senior Notes, the 2005 Senior Notes, and the existing 2005 Revolving Credit Agreement of 25 basis points ($1.3 million), and a 100 basis point origination fee ($0.6 million) on the superpriority credit facility. |
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U.S. Defined Benefit | Other Postretirement | |||||||||||||||||||||||
Pension Plan | Benefits | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Service cost | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Interest cost | 1,242 | 1,189 | 1,227 | 5 | 8 | 11 | ||||||||||||||||||
Recognized net actuarial loss/(gain) | 72 | 135 | 138 | (98 | ) | (104 | ) | (107 | ) | |||||||||||||||
Net pension and other postretirement benefit cost (income) | $ | 1,314 | $ | 1,324 | $ | 1,365 | $ | (93 | ) | $ | (96 | ) | $ | (96 | ) | |||||||||
U.S. Defined Benefit | Other Postretirement | |||||||||||||||
Pension Plan | Benefits | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Change in Benefit Obligation | ||||||||||||||||
Benefit obligation, beginning of year | $ | 20,903 | $ | 22,569 | $ | 134 | $ | 194 | ||||||||
Service cost | — | — | — | — | ||||||||||||
Interest cost | 1,242 | 1,189 | 5 | 8 | ||||||||||||
Actuarial (gain)/loss | (3,277 | ) | (933 | ) | 69 | (66 | ) | |||||||||
Benefits paid | (2,039 | ) | (1,922 | ) | (131 | ) | (2 | ) | ||||||||
Benefit obligation, end of year | $ | 16,829 | $ | 20,903 | $ | 77 | $ | 134 | ||||||||
Change in Plan Assets | ||||||||||||||||
Fair value, beginning of year | $ | — | $ | — | $ | — | $ | — | ||||||||
Company contributions | 2,039 | 1,922 | 131 | 2 | ||||||||||||
Benefits paid | (2,039 | ) | (1,922 | ) | (131 | ) | (2 | ) | ||||||||
Fair value, end of year | $ | — | $ | — | $ | — | $ | — | ||||||||
Funded/(unfunded) status | $ | (16,829 | ) | $ | (20,903 | ) | $ | (77 | ) | $ | (134 | ) | ||||
Accrued benefit cost | $ | (16,829 | ) | $ | (20,903 | ) | $ | (77 | ) | $ | (134 | ) | ||||
Amounts Recognized in the Consolidated Balance Sheets | ||||||||||||||||
Current accrued benefit liability | (6,648 | ) | (2,060 | ) | (27 | ) | (41 | ) | ||||||||
Non-current accrued benefit liability | (10,181 | ) | (18,843 | ) | (50 | ) | (93 | ) | ||||||||
Net amount recognized | $ | (16,829 | ) | $ | (20,903 | ) | $ | (77 | ) | $ | (134 | ) | ||||
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U.S. Defined Benefit Pension Plan | Other Postretirement Benefits | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Discount rate | 6.25 | % | 6.25 | % | 5.50 | % | 5.00 | % |
U.S. Defined Benefit | ||||||||
Pension Plan | ||||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Projected benefit obligation | $ | 16,829 | $ | 20,903 | ||||
Accumulated benefit obligation | $ | 16,829 | $ | 20,903 |
2008 | 2007 | |||||||
Health care cost trend rate assumed for next year | 8.50 | % | 9.00 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 6.00 | % | 6.00 | % | ||||
Year that the rate reaches the ultimate trend rate | 2014 | 2014 |
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U.S. Retirement | Other Postretirement | |||||||
Plans (SRP and RBP) | Benefits | |||||||
(Dollars in thousands) | ||||||||
2009 | $ | 9,728 | $ | 27 | ||||
2010 | 1,969 | 21 | ||||||
2011 | 1,719 | 17 | ||||||
2012 | 1,365 | 14 | ||||||
2013 | 1,319 | 5 | ||||||
2014 — 2018 | 5,275 | — |
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2004 Grant | ||||||||
Achievement | Options | |||||||
Stock Price | Period | Vested | ||||||
$36.67 | 3 years | 208,000 | ||||||
$39.81 | 4 years | 246,000 | ||||||
$42.77 | 5 years | 283,000 | ||||||
$46.88 | 5 years | 440,000 |
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2008 | 2007 | 2006 | ||||||||||
Expected stock volatility | 45.90 | % | 35.30 | % | 39.00 | % | ||||||
Risk-free interest rate (weighted average for fiscal year) | 1.10 | % | 3.06 | % | 5.19 | % | ||||||
Expected years until exercise | 3 | 3 | 3 | |||||||||
Dividend yield | 0.00 | % | 0.00 | % | 0.00 | % |
Executive Grantees | Director Grantees | LTIP Grantees | SAR Grantee | |||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||||||||||
Shares | Exercise | Shares | Exercise | Shares | Exercise | Shares | Exercise | |||||||||||||||||||||||||
(000’s) | Price | (000’s) | Price | (000’s) | Price | (000’s) | Price | |||||||||||||||||||||||||
Balance at the end of fiscal 2005 | 1,432 | $ | 25.53 | 66 | $ | 30.20 | 2,066 | $ | 31.24 | — | $ | — | ||||||||||||||||||||
2006: | ||||||||||||||||||||||||||||||||
Granted | — | — | 18 | 12.29 | — | — | — | — | ||||||||||||||||||||||||
Exercised | (29 | ) | 20.47 | — | — | — | — | — | — | |||||||||||||||||||||||
Forfeited/cancelled | (300 | ) | 27.49 | (3 | ) | 32.63 | (260 | ) | 30.97 | — | — | |||||||||||||||||||||
Awards outstanding at the end of fiscal 2006 | 1,103 | $ | 25.21 | 81 | $ | 24.68 | 1,806 | $ | 31.28 | — | $ | — | ||||||||||||||||||||
Awards exercisable at the end of fiscal 2006 | 1,073 | $ | 25.13 | 63 | $ | 30.06 | — | $ | — | — | $ | — | ||||||||||||||||||||
Weighted average fair value of awards granted during fiscal 2006 | $ | — | $ | 4.13 | $ | — | $ | — | ||||||||||||||||||||||||
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Executive Grantees | Director Grantees | LTIP Grantees | SAR Grantee | |||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||||||||||
Shares | Exercise | Shares | Exercise | Shares | Exercise | Shares | Exercise | |||||||||||||||||||||||||
(000’s) | Price | (000’s) | Price | (000’s) | Price | (000’s) | Price | |||||||||||||||||||||||||
2007: | ||||||||||||||||||||||||||||||||
Granted | — | — | — | — | — | — | 300 | 8.55 | ||||||||||||||||||||||||
Exercised | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Forfeited/cancelled | (259 | ) | 25.66 | (9 | ) | 26.78 | (1,366 | ) | 31.38 | — | — | |||||||||||||||||||||
Awards outstanding at the end of fiscal 2007 | 844 | $ | 25.08 | 72 | $ | 25.98 | 440 | $ | 30.97 | 300 | $ | 8.55 | ||||||||||||||||||||
Awards exercisable at the end of fiscal 2007 | 844 | $ | 25.08 | 72 | $ | 25.98 | — | $ | — | — | $ | — | ||||||||||||||||||||
Weighted average fair value of awards granted during fiscal 2007 | $ | — | $ | — | $ | — | $ | 2.61 | ||||||||||||||||||||||||
2008: | ||||||||||||||||||||||||||||||||
Granted | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Exercised | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Forfeited/cancelled | (502 | ) | 25.65 | (4 | ) | 25.81 | — | — | — | — | ||||||||||||||||||||||
Awards outstanding at the end of fiscal 2008 | 342 | $ | 24.23 | 68 | $ | 25.99 | 440 | $ | 30.97 | 300 | $ | 8.55 | ||||||||||||||||||||
Awards exercisable at the end of fiscal 2008 | 342 | $ | 24.23 | 68 | $ | 25.99 | — | $ | — | 100 | $ | 8.55 | ||||||||||||||||||||
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Awards Outstanding | Awards Exercisable | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Number | Remaining | Average | Number | Remaining | Average | |||||||||||||||||||
Range of | Outstanding | Contractual | Exercise | Exercisable | Contractual | Exercise | ||||||||||||||||||
Exercise Price | (000’s) | Life (Years) | Price | (000’s) | Life (Years) | Price | ||||||||||||||||||
$10.00 and Below | 300 | 3.3 | $ | 8.55 | 100 | 3.3 | $ | 8.55 | ||||||||||||||||
$10.01 - $15.00 | 16 | 3.5 | 12.29 | 16 | 3.5 | 12.29 | ||||||||||||||||||
$15.01 - $20.00 | 98 | 0.5 | 18.88 | 98 | 0.5 | 18.88 | ||||||||||||||||||
$20.01 - $25.00 | 151 | 0.6 | 21.81 | 151 | 0.6 | 21.81 | ||||||||||||||||||
$25.01 - $30.00 | 20 | 1.0 | 27.61 | 20 | 1.0 | 27.61 | ||||||||||||||||||
$30.01 - $35.00 | 524 | 4.4 | 31.13 | 84 | 1.0 | 31.95 | ||||||||||||||||||
$35.01 - $40.00 | 41 | 2.2 | 36.15 | 41 | 2.2 | 36.15 | ||||||||||||||||||
1,150 | 3.1 | $ | 22.82 | 510 | 1.5 | $ | 21.39 | |||||||||||||||||
Weighted | ||||||||||||||||
Average | Weighted | |||||||||||||||
Number | Remaining | Average | Aggregate | |||||||||||||
of Shares | Contractual | Exercise | Intrinsic | |||||||||||||
(000’s) | Life (Years) | Price | Value | |||||||||||||
Vested and expected to vest as of December 31, 2008 | 1,150 | 3.1 | $ | 22.82 | $ | — |
Employee Grantees | Director Grantees | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Shares | Grant-Date | Shares | Grant-Date | |||||||||||||
(000’s) | Fair Value | (000’s) | Fair Value | |||||||||||||
Nonvested restricted stock balance at the end of fiscal 2005 | 118 | $ | 33.55 | 13 | $ | 28.82 | ||||||||||
2006: | ||||||||||||||||
Granted | 2 | 29.04 | — | — | ||||||||||||
Vested | (18 | ) | 34.83 | — | — | |||||||||||
Forfeited/cancelled | (30 | ) | 34.67 | — | — | |||||||||||
Nonvested restricted stock outstanding at the end of fiscal 2006 | 72 | $ | 32.61 | 13 | $ | 28.82 | ||||||||||
2007: | ||||||||||||||||
Granted | — | — | — | — | ||||||||||||
Vested | (48 | ) | 33.11 | (8 | ) | 28.10 | ||||||||||
Forfeited/cancelled | (10 | ) | 32.20 | (3 | ) | 25.75 | ||||||||||
Nonvested restricted stock outstanding at the end of fiscal 2007 | 14 | $ | 31.17 | 2 | $ | 35.80 | ||||||||||
2008: | ||||||||||||||||
Granted | — | — | — | — | ||||||||||||
Vested | (14 | ) | 31.17 | (2 | ) | 35.80 | ||||||||||
Forfeited/cancelled | — | — | — | — | ||||||||||||
Nonvested restricted stock outstanding at the end of fiscal 2008 | — | $ | — | — | $ | — | ||||||||||
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Number of Securities | ||||||||||||
Number of Securities to be | Weighted-average | Remaining Available for | ||||||||||
Issued Upon Exercise of | Exercise Price of | Future Issuance | ||||||||||
Outstanding Options | Outstanding Options | Under Equity | ||||||||||
Plan Category | and Rights | and Rights | Compensation Plans(a) | |||||||||
Equity compensation plans approved by security holders | 1,150 | $ | 22.82 | 3,213 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 1,150 | $ | 22.82 | 3,213 | ||||||||
(a) | Excludes securities reflected in the first column, “Number of securities to be issued upon exercise of outstanding options and rights.” |
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(Dollars in thousands) | ||||
Balance as of December 30, 2006 | $ | — | ||
Accruals | 4,338 | |||
Payments made | (1,372 | ) | ||
Balance as of December 29, 2007 | $ | 2,966 | ||
Accruals | 103 | |||
Payments made | (513 | ) | ||
Balance as of December 31, 2008 | $ | 2,556 | ||
Current portion | $ | 1,879 | ||
Long-term portion | $ | 677 | ||
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F-98
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F-99
Table of Contents
First | Second | Third | Fourth | Total | ||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
2008 | ||||||||||||||||||||
Net sales | $ | 15,637 | $ | 33,514 | $ | 27,267 | $ | 22,113 | $ | 98,531 | ||||||||||
Gross profit | 9,104 | 22,166 | 17,311 | 14,011 | 62,592 | |||||||||||||||
Earnings (loss) from continuing operations before income taxes | (24,632 | ) | (1,601 | ) | (5,110 | ) | (51,321 | ) | (82,664 | ) | ||||||||||
Income tax expense (benefit) | — | — | — | 1,160 | 1,160 | |||||||||||||||
Loss from continuing operations | $ | (24,632 | ) | $ | (1,601 | ) | $ | (5,110 | ) | $ | (50,161 | ) | $ | (81,504 | ) | |||||
Basic loss per share from continuing operations | (0.82 | ) | (0.05 | ) | (0.17 | ) | (1.68 | ) | (2.73 | ) | ||||||||||
Diluted loss per share from continuing operations | (0.82 | ) | (0.05 | ) | (0.17 | ) | (1.68 | ) | (2.73 | ) |
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First | Second | Third | Fourth | Total | ||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
2007 | ||||||||||||||||||||
Net sales | $ | 20,059 | $ | 36,330 | $ | 31,837 | $ | 21,386 | $ | 109,612 | ||||||||||
Gross profit | 13,338 | 25,810 | 21,864 | 12,408 | 73,420 | |||||||||||||||
Earnings (loss) from continuing operations before income taxes | (15,885 | ) | (1,985 | ) | (3,207 | ) | (78,581 | ) | (99,658 | ) | ||||||||||
Income tax expense (benefit) | (6,074 | ) | (756 | ) | (1,226 | ) | (4,340 | ) | (12,396 | ) | ||||||||||
Earnings (loss) from continuing operations | (9,811 | ) | (1,229 | ) | (1,981 | ) | (74,241 | ) | (87,262 | ) | ||||||||||
Earnings (loss) from discontinued operations, net of income tax | 4,594 | — | — | 866 | 5,460 | |||||||||||||||
Gain on sale of discontinued operations, net of income tax | 46,572 | — | — | — | 46,572 | |||||||||||||||
Net earnings (loss) | $ | 41,355 | $ | (1,229 | ) | $ | (1,981 | ) | $ | (73,375 | ) | $ | (35,230 | ) | ||||||
Loss per share from continuing operations | (0.33 | ) | (0.04 | ) | (0.07 | ) | (2.49 | ) | (2.92 | ) | ||||||||||
Earnings per share from discontinued operations | 0.15 | — | — | 0.03 | 0.18 | |||||||||||||||
Gain per share from sale of discontinued operations | 1.56 | — | — | — | 1.56 | |||||||||||||||
Basic earnings (loss) per share | 1.38 | (0.04 | ) | (0.07 | ) | (2.46 | ) | (1.18 | ) | |||||||||||
Loss per share from continuing operations | (0.33 | ) | (0.04 | ) | (0.07 | ) | (2.49 | ) | (2.92 | ) | ||||||||||
Earnings per share from discontinued operations | 0.15 | — | — | 0.03 | 0.18 | |||||||||||||||
Gain per share from sale of discontinued operations | 1.56 | — | — | — | 1.56 | |||||||||||||||
Diluted earnings (loss) per share | 1.38 | (0.04 | ) | (0.07 | ) | (2.46 | ) | (1.18 | ) | |||||||||||
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Table of Contents
Page | ||||||
ARTICLE I THE MERGERS | A-2 | |||||
Section 1.1. | The Mergers | A-2 | ||||
Section 1.2. | Closing | A-2 | ||||
Section 1.3. | Effective Time | A-2 | ||||
Section 1.4. | Effects of the Mergers | A-3 | ||||
Section 1.5. | Certificate of Incorporation and By-laws of the Surviving Corporations | A-3 | ||||
Section 1.6. | Directors | A-3 | ||||
Section 1.7. | Officers | A-3 | ||||
ARTICLE II CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES | A-3 | |||||
Section 2.1. | Effect on Vowel Capital Stock | A-3 | ||||
Section 2.2. | Effect on Consonant Capital Stock | A-6 | ||||
Section 2.3. | Exchange of Certificates | A-7 | ||||
Section 2.4. | Treatment of Consonant Management Incentive Plan | A-10 | ||||
Section 2.5. | Treatment of Vowel Stock Options and Other Stock-Based Awards | A-10 | ||||
Section 2.6. | Withholding Rights | A-11 | ||||
Section 2.7. | Additional Issuance of Holdco Common Stock | A-11 | ||||
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VOWEL | A-12 | |||||
Section 3.1. | Corporate Organization | A-12 | ||||
Section 3.2. | Subsidiaries | A-12 | ||||
Section 3.3. | Capitalization | A-13 | ||||
Section 3.4. | Authority | A-13 | ||||
Section 3.5. | No Conflicts | A-14 | ||||
Section 3.6. | SEC Reports; Financial Statements | A-14 | ||||
Section 3.7. | Conduct of Business | A-15 | ||||
Section 3.8. | Undisclosed Liabilities; No Material Events | A-16 | ||||
Section 3.9. | Taxes | A-16 | ||||
Section 3.10. | Intellectual Property | A-16 | ||||
Section 3.11. | Title to Properties; Leases; Assets | A-18 | ||||
Section 3.12. | Environmental Matters | A-19 | ||||
Section 3.13. | Material Contracts | A-19 | ||||
Section 3.14. | Employee Benefit Plans | A-21 | ||||
Section 3.15. | Labor Matters | A-23 | ||||
Section 3.16. | Employment Matters | A-24 | ||||
Section 3.17. | Litigation; Compliance with Laws; Licenses; Permits and Approvals | A-24 | ||||
Section 3.18. | Brokers | A-25 | ||||
Section 3.19. | Insurance | A-25 | ||||
Section 3.20. | Related Party Transactions | A-26 | ||||
Section 3.21. | Customers and Vendors | A-26 | ||||
Section 3.22. | Accounts Receivable | A-26 | ||||
Section 3.23. | No Prebillings or Prepayments | A-26 | ||||
Section 3.24. | Inventory | A-26 | ||||
Section 3.25. | Foreign Corrupt Practices Act | A-27 | ||||
Section 3.26. | Export Controls | A-27 | ||||
Section 3.27. | Software | A-27 | ||||
Section 3.28. | Tax Qualification | A-27 |
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Page | ||||||
Section 3.29. | Opinion of Financial Advisor | A-28 | ||||
Section 3.30. | Required Vote of the Vowel Stockholders | A-28 | ||||
Section 3.31. | Disclosure Documents | A-28 | ||||
Section 3.32. | State Takeover Statutes and Rights Plans | A-28 | ||||
Section 3.33. | Bank Accounts | A-28 | ||||
Section 3.34. | Transaction Expenses | A-28 | ||||
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CONSONANT | A-29 | |||||
Section 4.1. | Corporate Organization | A-29 | ||||
Section 4.2. | Subsidiaries | A-29 | ||||
Section 4.3. | Capitalization | A-29 | ||||
Section 4.4. | Authority | A-30 | ||||
Section 4.5. | No Conflicts | A-31 | ||||
Section 4.6. | Financial Statements | A-31 | ||||
Section 4.7. | Conduct of Business | A-32 | ||||
Section 4.8. | Undisclosed Liabilities; No Material Events | A-32 | ||||
Section 4.9. | Taxes | A-32 | ||||
Section 4.10. | Intellectual Property | A-32 | ||||
Section 4.11. | Title to Properties; Leases; Assets | A-34 | ||||
Section 4.12. | Environmental Matters | A-35 | ||||
Section 4.13. | Material Contracts | A-35 | ||||
Section 4.14. | Employee Benefit Plans | A-37 | ||||
Section 4.15. | Labor Matters | A-39 | ||||
Section 4.16. | Employment Matters | A-40 | ||||
Section 4.17. | Litigation; Compliance with Laws; Licenses; Permits and Approvals | A-40 | ||||
Section 4.18. | Brokers | A-41 | ||||
Section 4.19. | Insurance | A-41 | ||||
Section 4.20. | Related Party Transactions | A-42 | ||||
Section 4.21. | Customers and Vendors | A-42 | ||||
Section 4.22. | Accounts Receivable | A-42 | ||||
Section 4.23. | No Prebillings or Prepayments | A-42 | ||||
Section 4.24. | Inventory | A-43 | ||||
Section 4.25. | Foreign Corrupt Practices Act | A-43 | ||||
Section 4.26. | Export Controls | A-43 | ||||
Section 4.27. | Software | A-43 | ||||
Section 4.28. | Tax Qualification | A-43 | ||||
Section 4.29. | Disclosure Documents | A-44 | ||||
Section 4.30. | State Takeover Statutes and Rights Plans | A-44 | ||||
Section 4.31. | Bank Accounts | A-44 | ||||
Section 4.32. | Transaction Expenses | A-44 | ||||
ARTICLE V COVENANTS | A-46 | |||||
Section 5.1. | Conduct of Business by Consonant and Vowel | A-46 | ||||
Section 5.2. | Access | A-49 | ||||
Section 5.3. | Vowel No Solicitation | A-50 | ||||
Section 5.4. | Filings; Other Actions | A-52 | ||||
Section 5.5. | Efforts | A-54 | ||||
Section 5.6. | Takeover Statute | A-55 |
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Page | ||||||
Section 5.7. | Public Announcements | A-55 | ||||
Section 5.8. | Indemnification and Insurance | A-55 | ||||
Section 5.9. | Employee Relations and Benefits | A-56 | ||||
Section 5.10. | Holdco Stock Options | A-57 | ||||
Section 5.11. | Control of Operations | A-57 | ||||
Section 5.12. | Notification of Certain Matters | A-57 | ||||
Section 5.13. | Rule 16b-3 | A-58 | ||||
Section 5.14. | Agreement to Defend; Stockholder Litigation | A-58 | ||||
Section 5.15. | Nasdaq Listing | A-58 | ||||
Section 5.16. | Directors and Officers of Holdco | A-58 | ||||
Section 5.17. | Tax-Free Qualification | A-58 | ||||
Section 5.18. | Tax Representation Letters | A-59 | ||||
Section 5.19. | Transfer Restrictions | A-59 | ||||
Section 5.20. | Closing Deliveries | A-59 | ||||
Section 5.21. | Credit Agreements Provisions | A-59 | ||||
Section 5.22. | Vowel Tax Holdback Amounts; Tax Refund Escrow | A-60 | ||||
Section 5.23. | Agreed Contingencies | A-61 | ||||
Section 5.24. | Vowel Closing Liabilities | A-62 | ||||
Section 5.25. | LAZEL Spinoff | A-64 | ||||
Section 5.26. | VEL Drop-Down Transaction and Related Agreements | A-64 | ||||
Section 5.27. | Working Capital | A-65 | ||||
ARTICLE VI CLOSING CONDITIONS | A-66 | |||||
Section 6.1. | Conditions to Each Party’s Obligation to Effect the Mergers | A-66 | ||||
Section 6.2. | Conditions to Obligation of Vowel to Effect the Vowel Merger | A-67 | ||||
Section 6.3. | Conditions to Obligations of Consonant to Effect the Consonant Merger | A-67 | ||||
Section 6.4. | Frustration of Closing Conditions | A-68 | ||||
ARTICLE VII TERMINATION | A-68 | |||||
Section 7.1. | Termination or Abandonment | A-68 | ||||
Section 7.2. | Effect of Termination; Sole and Exclusive Remedy | A-70 | ||||
Section 7.3. | Expenses and Other Payments | A-71 | ||||
ARTICLE VIII STOCKHOLDERS’ REPRESENTATIVE | A-74 | |||||
Section 8.1. | Appointment of Stockholders’ Representative | A-74 | ||||
Section 8.2. | Authority | A-74 | ||||
Section 8.3. | Reliance | A-75 | ||||
Section 8.4. | Indemnification of Stockholders’ Representative | A-75 | ||||
ARTICLE IX GENERAL PROVISIONS | A-75 | |||||
Section 9.1. | No Survival of Representations and Warranties; Limitations of Representations and Warranties | A-75 | ||||
Section 9.2. | Counterparts; Effectiveness | A-75 | ||||
Section 9.3. | Notices | A-76 | ||||
Section 9.4. | Headings | A-77 | ||||
Section 9.5. | Severability | A-77 | ||||
Section 9.6. | Assignment; Binding Effect | A-77 | ||||
Section 9.7. | Entire Agreement; No Third-Party Beneficiaries | A-77 | ||||
Section 9.8. | Amendments; Waivers | A-78 |
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Section 9.9. | Governing Law | A-78 | ||||
Section 9.10. | Jurisdiction, Etc | A-78 | ||||
Section 9.11. | WAIVER OF JURY TRIAL | A-78 | ||||
Section 9.12. | Waiver of Jury Trial | A-79 | ||||
Section 9.13. | Interpretive Provisions | A-79 | ||||
Section 9.14. | Provisions Regarding Legal Representation | A-79 | ||||
Section 9.15. | Certain Definitions | A-80 |
Exhibits | ||
Exhibit A-1 | Holdings III Merger Agreement | |
Exhibit A-2 | Holdings III Contribution Agreement | |
Exhibit A-3 | Holdings IV Contribution Agreement | |
Exhibit B-1 | Form of Vowel Voting Agreement | |
Exhibit B-2 | Form of Consonant Voting Agreement | |
Exhibit C-1 | Vowel Preliminary Closing Certificate | |
Exhibit C-2 | Vowel Closing Certificate | |
Exhibit D-1 | Certificate of Incorporation of Consonant Surviving Corporation | |
Exhibit D-2 | Bylaws of Consonant Surviving Corporation | |
Exhibit E-1 | Certificate of Incorporation of Vowel Surviving Corporation | |
Exhibit E-2 | Bylaws of Vowel Surviving Corporation | |
Exhibit F | Form of Holdco Warrant | |
Exhibit G | Holdco Stockholders Agreement | |
Exhibit H | Amended and Restated Certificate of Incorporation of Holdco | |
Exhibit I | By-laws of Holdco | |
Exhibit J | Security Agreement | |
Exhibit K | LAZEL Guaranty | |
Exhibit L | Contingent Value Right Agreement | |
Exhibit M | Escrow Agreement | |
Exhibit N | Holdco 2009 Equity Incentive Plan | |
Exhibit O-1 | Services Agreement | |
Exhibit O-2 | Subscription Agreement | |
Exhibit O-3 | Subscription Agreement | |
Exhibit P-1 | Stock Purchase Agreement | |
Exhibit P-2 | Subscription Agreement | |
Exhibit Q | Holdco Note | |
Exhibit R | Holdco Vowel Liability Guaranty |
Schedules | ||
Schedule A | List of Vowel stockholders executing the Vowel Voting Agreement | |
Schedule B | List of VSS Funds executing Consonant Voting Agreement | |
Schedule 1.6 | Directors of Consonant Surviving Corporation and Vowel Surviving Corporation | |
Schedule 1.7 | Officers of Consonant Surviving Corporation and Vowel Surviving Corporation | |
Schedule 5.24 | Vowel Closing Funding Amounts |
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By: | /s/ Scott J. Troeller |
Title: | President |
By: | /s/ Richard Surratt |
Title: | President and Chief Executive Officer |
By: | /s/ Scott J. Troeller |
Title: | President |
By: | /s/ Scott J. Troeller |
Title: | President |
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By: | /s/ Scott J. Troeller |
Title: | President |
By: | /s/ William E. Oberndorf |
Title: | Vice President |
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CERTIFICATE OF INCORPORATION
OF
CAMBIUM-VOYAGER HOLDINGS, INC.
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A. | CALLING A MEETING |
B. | ACTIONS BY STOCKHOLDERS |
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C. | ADVANCE NOTICE |
A. | NUMBER; TERM |
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B. | REMOVAL |
C. | VACANCIES |
D. | ELECTION |
E. | VOTING |
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A. | LIABIILITY |
B. | INDEMNIFICATION |
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By: | /s/ Scott J. Troeller |
Title: | President |
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OF
CAMBIUM LEARNING GROUP, INC.
(formerly known as Cambium Voyager Holdings, Inc.)
(a Delaware corporation)
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By: | /s/ Kim Wieland |
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• | On a pro forma basis, the “Fair Value” and “Present Fair Saleable Value” (as defined herein) of the assets of Holdco, as applicable, would exceed the sum of its respective probable liabilities, including all “Contingent and Other Liabilities” (as defined herein), on its respective existing debts as such debts become absolute and matured; | |
• | Holdco and its subsidiaries will be able to pay their respective debts as they become due in the ordinary course of their respective businesses on a consolidated basis; | |
• | The capital remaining in Holdco and its subsidiaries after the Transaction would not be unreasonably small for the respective business in which it is engaged, as Holdco’s management | |
• | has indicated it is now and is proposed to be conducted following the consummation of the Transaction; | |
• | The Fair Value of Holdco’s assets exceeds the value of its liabilities, including all Contingent and Other Liabilities, by an amount that is greater than its stated capital amount; and |
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• | The sum of the assets of Holdco, as applicable, at Fair Value is greater than all its respective debts at fair valuation. |
• | Reviewed the following agreements and documents related to the Transaction: |
• | Draft Agreement and Plan of Mergers by and among Consonant Holdings, Inc., Vowel, Vowel Acquisition Corp., VSS-Consonant Holdings II Corp., and Consonant Acquisition Corp., dated as of May 11, 2009; |
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• | A summary term sheet including structure diagrams of the various steps of the Transaction, dated as of February 5, 2009; and | |
• | Cambium’s Credit Agreements, including the senior secured debt credit agreement, dated as of April 12, 2007, and its respective amendments, including the limited waiver and amendment, and the permanent waiver and amendment, dated as of May 20, 2008 and August 22, 2008, respectively. |
• | Held discussions with certain members of Voyager management (“Management”) regarding the Transaction, the pro forma historical performance and pro forma financial projections of Holdco, and the future outlook for Holdco. | |
• | Obtained, reviewedand/or analyzed certain information relating to the historical, current and future operations of Voyager and Constant on a pro forma basis as consolidated through Holdco on a post-transaction basis, including but not limited to the following: |
• | Four-year, pro forma financial projections for Holdco, as provided by Management, including net operating loss (“NOL”) carry forward calculations; | |
• | Unaudited, historical pro forma financial statements for Holdco for fiscal years 2006 through 2008, as provided by Management; | |
• | Cambium’s audited financial statements for the fiscal years ending December 31, 2006 and December 31, 2007; | |
• | Voyager’s audited financial statements for the fiscal years ending December 31, 1994 through December 31, 2008; | |
• | Voyager’s accounts receivable aging schedule and customer sales report, dated as of December 31, 2008 and January 15, 2009, respectively; and | |
• | Voyager’s monthly working capital projections for 2009. |
• | Obtained and reviewed the following documents with regards to Cambium: |
• | Second Amended and Restated Certificate of Incorporation of Cambium, dated as of April 12, 2005; | |
• | Minutes of Cambium’s board of directors’ meetings between December 9, 2005 and October 26, 2006; and | |
• | Discussed with Management the status of current outstanding legal claims and confirmed that any potential related financial exposure, as a result of the legal claims, has been properly disclosed. |
• | Obtained and reviewed the following documents with regards to Voyager: |
• | Minutes of Voyager’s audit committee and board of director meetings between January 4, 2001 and October 13, 2008; | |
• | Documentation related to the patents, trademarks, and licensing agreements of Cambium; and | |
• | Discussed with Management the status of current outstanding legal claims and confirmed that any potential related financial exposure, as a result of the legal claims, has been properly disclosed. |
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• | Reviewed certain other relevant, publicly available information, including economic, industry, and Company specific information. |
• | On a pro forma basis, the Fair Value and Present Fair Saleable Value of the assets of Holdco, as applicable, would exceed the sum of its respective probable liabilities, including all Contingent and Other Liabilities, on its respective existing debts as such debts become absolute and matured, following the consummation of the Transaction; | |
• | Holdco and its subsidiaries will be able to pay their respective debts as they become due in the ordinary course of their respective businesses on a consolidated basis; |
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• | The capital remaining in Holdco and its subsidiaries after the Transaction would not be unreasonably small for the respective business in which it is engaged, as Holdco’s management has indicated it is now and is proposed to be conducted following the consummation of the Transaction; | |
• | The Fair Value of Holdco’s assets exceeds the value of its liabilities, including all Contingent and Other Liabilities, by an amount that is greater than its stated capital amount; and | |
• | The sum of the assets of Holdco, as applicable, at Fair Value is greater than all its respective debts at fair valuation. |
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350 Park Avenue
New York, NY 10022
Facsimile:(212) 381-8168
Attention: Scott J. Troeller
Lowenstein Sandler PC
1251 Avenue of the Americas
New York, NY 10020
Facsimile:(973) 597-2507
Attention: Steven E. Siesser, Esq.
789 Eisenhower Parkway
Ann Arbor, MI 48108
Facsimile:(734) 663-5692
Attention: Todd Buchardt
131 South Dearborn Street
Suite 1700
Chicago, Illinois 60603
Facsimile:(312) 324-9400
Attention: Phil Gordon, Esq.
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By: | VSS Equities IV, LLC, |
By: | /s/ Scott J. Troeller |
Title: | Manager |
By: | /s/ Richard Surratt |
Title: | President and Chief Executive Officer |
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By: | /s/ Richard Surratt |
Ann Arbor, MI 48104
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By: | /s/ Scott J. Troeller |
350 Park Avenue
New York, New York 10022
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LLC Interests Owned 100% | Number of LLC Interests Issuable upon exercise of Options and Other Rights | |
None | ||
Shares of Cambium Holdings II Common Stock Owned 1,000 shares | Number of Shares of Cambium Holdings II Common Stock Issuable upon exercise of Options and Other Rights | |
None | ||
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Delaware limited liability company
owned of record as of the date of this Proxy:
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Delaware limited liability company
owned of record as of the date of this Proxy:
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By: |
Title: | President |
350 Park Avenue
New York, NY 10022
Attn: Scott J. Troeller
Facsimile:
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Signature: |
Subject Securities: |
By: |
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